For almost three decades, the federal government and state governments have addressed environmental problems primarily through "command and control" regulation. Under the traditional approach, the federal government establishes uniform national pollution limits ("command") that the federal or state governments impose on individual polluters through a system of permits or other controls.⁽¹⁾ However, as the command and control approach has eliminated many of the most prolific sources of pollution, the incremental cost of cleaning up the remaining pollution has risen dramatically,⁽²⁾ and command and control regulation has become politically less attractive. In addition, command and control regulation may be too rigid to address many of the remaining major environmental problems, such as non-point source water pollution.⁽³⁾
 

Academics have criticized command and control regulation on several grounds for over a decade.⁽⁴⁾ Critics argue that command and control regulation is not cost-effective, because it normally requires all polluters to comply with the same pollution limits, even though one polluter may be able to reduce its pollution more cheaply than another polluter,⁽⁵⁾ and even though it may not be necessary for all polluters to reduce their pollution to the levels required by the uniform limits in order to achieve pollution reductions that protect human health or the environment.⁽⁶⁾ Critics also argue that command and control regulation (i) imposes unreasonable and exorbitant information-gathering burdens and costs on government⁽⁷⁾; (ii) often imposes disproportionate burdens on new pollution sources;⁽⁸⁾ and (iii) does not provide any incentives to polluters to develop new strategies to reduce their pollution beyond the levels required by law.⁽⁹⁾
 

In light of those criticisms and limitations, the federal government and state governments are increasingly implementing market-based approaches to address environmental problems.⁽¹⁰⁾ The Clinton Administration has suggested that "market incentives should be used to achieve environmental goals, whenever appropriate"⁽¹¹⁾, and a recent report by the Environmental Law Institute estimates that governments are using over 100 different economic incentive mechanisms to address environmental problems in the United States.⁽¹²⁾
 

Instead of mandating uniform pollution reductions on a national basis, market-based approaches use economic incentives to encourage polluters to reduce their pollution in the most cost-effective manner.⁽¹³⁾ Theoretically, market-based approaches achieve the same, or greater, level of pollution reduction as command and control regulation⁽¹⁴⁾, and eliminate the information-gathering burden on the government of command and control regulation.⁽¹⁵⁾

The major types of market-based approaches that have been implemented over the past decade are pollutant trading programs, pollution taxes and subsidies, deposit-refund systems⁽¹⁶⁾, and regulatory waiver or variance programs, such as EPA's Project XL or Brownfields Action Agenda.⁽¹⁷⁾

In a pollutant trading program, the government gives polluters the "right" to discharge a specific amount of pollution, and allows polluters to buy and sell their pollution rights.⁽¹⁸⁾ Under a typical trading program, if a polluter is discharging 10 tons of pollution, but only has the "right" to discharge 5 tons of pollution, the polluter must either reduce its pollution discharge by 5 tons, or buy the right to discharge an additional 5 tons from another polluter. If it costs less for the polluter to buy the "right" to discharge an additional 5 tons of pollution than it costs to reduce its discharge by 5 tons, the polluter will buy the additional pollution rights. Thus, a pollutant trading system allows polluters to choose the most cost-effective means of controlling pollution. In addition, the system provides incentives to polluters to reduce their pollution discharges beyond the levels allowed by law, because they can sell their pollution "rights" to other polluters.⁽¹⁹⁾
 

In many trading programs, the government auctions or sells some of the pollution rights to polluters.⁽²⁰⁾ Accordingly, trading programs can also raise revenue for the government,⁽²¹⁾ while limiting the overall discharge of pollution.⁽²²⁾
 

Pollution taxes provide benefits that are similar to the benefits of pollutant trading programs. Under the pollution tax approach, the government imposes a tax on the discharge of a particular type of pollution.⁽²³⁾ If it costs less for a polluter to reduce its discharge of pollution than it costs to pay the tax for the discharge, the polluter will reduce the pollution discharge. Otherwise, the polluter will pay the tax.⁽²⁴⁾ Accordingly, pollution taxes allow polluters to control their pollution in the most cost-effective manner.⁽²⁵⁾ Pollution taxes also provide incentives to polluters to reduce their pollution discharges beyond levels allowed by law, because the polluters can reduce their tax burden by reducing their discharges.⁽²⁶⁾ Finally, pollution taxes provide revenue for the government, in the same way that auctioning pollution "rights" can provide revenue for the government.⁽²⁷⁾ Unlike trading programs, however, pollution taxes cannot guarantee specific reductions in pollution levels.⁽²⁸⁾

Subsidies are the mirror image of pollution taxes. Instead of taxing pollution discharges, the government offers subsidies to polluters that reduce their pollution discharges.⁽²⁹⁾ If the polluter can reduce its pollution discharge at a cost that is less than the amount of the subsidy, the polluter will probably reduce its discharge.
 

Deposit-refund systems use a combination of a tax and subsidy to encourage pollution reduction.⁽³⁰⁾ Consumers of potentially polluting products pay a surcharge when they purchase the product, and receive a refund of the surcharge when they return the product for recycling or proper disposal.⁽³¹⁾ This system has traditionally been used to encourage recycling and proper disposal of beverage containers⁽³²⁾, but states have also used deposit-refund systems for tires, lead-acid batteries, used motor vehicle oil and pesticide containers.⁽³³⁾
 

Finally, in regulatory waiver or variance programs, the government allows polluters to avoid some command and control requirements if the polluter uses other means to achieve the same level of pollution reduction in a more cost-effective manner.⁽³⁴⁾
 

Supporters of these market-based approaches cite dozens of studies that suggest that market-based approaches can reduce pollution control costs by millions of dollars⁽³⁵⁾, and provide equivalent or better environmental protection than command and control regulation.⁽³⁶⁾ Even if market-based approaches deliver on all of those rosy predictions⁽³⁷⁾, governments should proceed down the economic path with caution, because "market-based" approaches could exacerbate existing problems of environmental injustice⁽³⁸⁾.
 

It is well established that minority and low-income communities suffer disproportionate exposure to a variety of types of pollution under the existing command and control regulatory approach.⁽³⁹⁾ Although the traditional approach clearly has not adequately addressed distributional inequities, market-based approaches will inevitably exacerbate those inequities. While the traditional command and control environmental laws and regulations do not explicitly require the government to avoid actions that disparately impact low-income or minority communities, those laws also do not affirmatively encourage unequal distribution of pollution. By contrast, as explained below, many market-based approaches to environmental protection affirmatively encourage polluters to shift pollution to lower income communities. While command and control regulation may be facially neutral, but discriminatory in practice, many market-based approaches are designed in a way that will inevitably treat low-income communities unfairly.
 

Classical economic theory institutionalizes and exacerbates existing social disparities that are based on unequal distributions of income. As Judge Richard Posner suggests, in a free market economy, where voluntary exchange is permitted, "resources are shifted to those uses in which the value to consumers, as measured by their willingness to pay, is highest. When resources are being used where their value is highest, we may say that they are being employed efficiently."⁽⁴⁰⁾ Although Posner defines "value" in terms of "willingness to pay," on closer reflection, it is clear that Posner and other economists incorporate "ability to pay" into the concept of "willingness to pay."⁽⁴¹⁾ Thus, under traditional economic theory, a pollutant trading program, tax program or similar market-based reform that shifts pollution to low-income communities is operating efficiently, and, therefore, desirably, because resources, such as clean air and clean water, are shifted to the uses in which the value to consumers, as measured by their willingness (and ability) to pay, is highest. Since wealthy communities are "willing to pay" more for clean air and water than low income communities, the market operates efficiently when it funnels those resources to those communities,⁽⁴²⁾ rather than low income communities. In a free market, low-income communities will never have sufficient financial resources to buy clean air, clean water and similar environmental and public health resources from wealthy communities or polluters.
 

As Professor James White has astutely noted, the economists' justification for the "efficiency" of the free market "takes for granted not only the existing values (or tastes) of the actors, but also the existing distributions among them of wealth, capacity and entitlement, which it has no way of criticizing ... The market ideology claims to be radically democratic and egalitarian, because it leaves every person free to do with her own will what she will. But this freedom of choice is not equally distributed among all people. The market is democratic not on the principle of one person, one vote, but on the far different principle of one dollar, one vote."⁽⁴³⁾
 

In response to those criticisms, economists admit that economic theory does not make value judgments regarding the distribution of resources, or the moral or social implications of "efficient" allocations of resources.⁽⁴⁴⁾ They admit that economic theory does not address the important underlying question regarding whether an efficient allocation of resources is socially or ethically desirable.⁽⁴⁵⁾ Nevertheless, they argue that economic theory provides a valuable tool for analysis and prediction of behavior.⁽⁴⁶⁾
 

However, environmental law developed and flourished precisely because economic theory, and the free market, did not address those social concerns.⁽⁴⁷⁾ Environmental laws often incorporate a moral vision, and strive to advance civic values that are ignored in the free market.⁽⁴⁸⁾ Environmental law responds to the failure of the free market to prevent pollution and the destruction of natural resources. While environmental laws should weigh economic issues, the laws should not substitute economic considerations for the important social considerations that motivated legislators to enact the laws in the first place.⁽⁴⁹⁾
 

Despite the inherent inequities in market-based environmental protection, governments will continue to implement market-based reforms to achieve "efficient" allocations of resources. However, governments should proceed down the "economic incentive" path with caution because prior "market-based" reforms have not delivered on the promise of "efficient" allocation of resources.
 

In a traditional pollutant trading program, for example, Company "A" voluntarily buys the "right" to discharge pollution from Company "B", because it is cheaper for Company "A" to buy the "right" to pollute than to reduce the amount of pollution that it discharges. While this transaction may be "cost effective" for Company "A" and Company "B", it is not clear that it is an "efficient" transaction from an economic standpoint.
 

If the transaction is examined in terms of Pareto-optimal efficiency, where a "Pareto-superior" transaction is one that makes at least one person better off and no persons worse off⁽⁵⁰⁾, the trade will probably not be efficient. Although Company "A" and Company "B" are better off, persons who live near Company "A", fish in the streams around Company "A" or hike in the woods around Company "A" may suffer harm from pollution that Company "A" would have reduced if it did not buy the right to discharge pollution from Company "B." Those third parties are "worse off" as a result of the trade. If the third parties were compensated for the harm that resulted from the trade, the transaction could be "Pareto superior." ⁽⁵¹⁾ However, trading programs do not require participants to compensate third parties for harms caused by the trades.
 

If the transaction is examined in terms of Kaldor-Hicks efficiency⁽⁵²⁾, where a transaction is efficient if the economic benefits of the transaction exceed the economic harms of the transaction⁽⁵³⁾, many trades may be inefficient. A trade will only be "efficient" if the benefits to the trading parties and third parties exceed any harm caused by the trade.
 

The benefits for the trading partners are economically quantifiable. The seller receives a benefit equal to the amount of money that the seller receives from the buyer for the pollution "rights" minus the cost, if any, of creating those "rights" in the first place.⁽⁵⁴⁾ The buyer receives a benefit equal to the amount of money that the seller saved by buying the pollution "rights" instead of reducing its pollution discharge. Since most of the trading programs that have been implemented in the past limit the amount of pollution "right" that a company can buy, by requiring polluters to meet certain minimal pollution discharge limits, the economic benefits available to companies through trading have been limited in the past.⁽⁵⁵⁾
 

While the benefits to the trading partners are economically quantifiable, the benefits and harms to third parties are often difficult to quantify. Assume, for instance, that Company "A" buys the right to continue to discharge 100 pounds of a pollutant into a river. The discharge of that pollution might (a) contribute to pollution of drinking water that causes adverse health effects to persons that drink the water, and economic costs to the community to clean up the water; (b) harm fish in the river, which could have adverse health impacts and/or economic impacts, depending upon the use of the river by the community; (c) contribute to adverse health impacts to persons that swim in the water, which could have economic effects if the river is a tourist attraction; (d) contribute to a decline in other plants or organisms in the river, which could have impacts on health or the economy; (e) contribute to a decline in the aesthetic beauty of the river, which could have psychological and social impacts on the community, in addition to economic impacts.⁽⁵⁶⁾ It is extremely difficult to identify the extent to which a pollution trade causes these impacts.⁽⁵⁷⁾ In addition, all of these impacts, especially the health impacts, are extremely difficult to quantify in economic terms.⁽⁵⁸⁾ As a result, most of the impacts are ignored or undervalued in economic calculations.⁽⁵⁹⁾ To the extent that economists ignore or undervalue these impacts when analyzing pollutant trading programs, assertions that the programs operate "efficiently" should be viewed skeptically. While trading programs and similar market-based approaches may be "cost-effective" for businesses, it is not clear that they "efficiently"allocate resources throughout society.
 

Theoretically, in a free market economy, if the harm that a pollution trade caused third parties outweighed the benefits to those parties, the third parties would bargain with the trading parties to prevent the harm. Accordingly, resources would be allocated efficiently in the free market. However, market failures prevent the efficient operation of the market for environmental or public health resources, and often prevent low income communities from even participating in the market. For a variety of reasons, third parties that are harmed by a pollutant trade may not bargain with the trading partners to prevent the harm. In some cases, while the aggregate harm to all third parties may outweigh the benefits of the trade, no single party, or group of parties, may be harmed sufficiently to be motivated to bargain to prevent the trade. In some cases, third parties may be willing to bargain with the traders to prevent the trade, but may be unable to pay the traders enough money to prevent the trade. Finally, in some cases, the third parties will not bargain with the traders because the third parties lack information about the potential health, environmental and economic impacts of a trade to recognize that the trade will adversely impact them, or to recognize the degree of impact. In each of those situations, the harm caused by the trade will outweigh the benefits of the trade, yet the trade will be made. Resources will be allocated inefficiently due to market failures.
 

In order to compensate for those market failures, if governments continue to adopt "market-based" environmental reforms, they should take several steps to ensure that the reforms achieve an "efficient" allocation of resources. Since third parties may individually lack the motivation to participate in the market, although their collective injury exceeds the benefits of a particular transaction, market-based reforms should include mechanisms to foster collective organization and action by third parties, or at least to provide a safety net for third parties that will fail to organize due to the high transaction costs. Since third parties may lack sufficient information to understand the impacts that various market-based environmental strategies may have on them, market-based initiatives should include mechanisms to increase the availability of information and the opportunities for public participation. To the extent that financial disparities reduce the ability of third parties to participate in the market, market-based initiatives could address the disparities to some extent through grants and loans. If market-based reforms do not include these safeguards, it is unlikely that they will achieve "efficient" allocations of resources.
 
 

As the preceding section illustrates, most market-based environmental reforms fail to address important social issues, including the distributional impacts of pollution, and ignore deficiencies in the market that lead to inefficient allocation of environmental and public health resources. As a result, those reforms could exacerbate existing environmental injustices. Section II of this article examines many of the current and proposed market-based environmental reforms and analyzes the potential disparate impacts that could arise from those reforms. Section III examines pollution prevention and multimedia regulation to demonstrate that market-based approaches could, in some cases, improve environmental quality in an efficient manner and foster environmental justice. Finally, Section IV explores ways that market-based reforms are being, or could be, modified, to ensure that environmental protection initiatives foster environmental justice and allocate resources "efficiently."
 

The Federal government and state governments have implemented a variety of different types of market-based environmental protection programs over the past decade. Some of the major initiatives are pollutant trading programs, pollution taxes, and EPA's Project XL and Brownfields initiatives. While those programs are reducing the overall cost of environmental protection for businesses, they could perpetuate the disparate treatment of low-income communities.
 

Most of the pollutant trading programs that have been implemented in the United States have focused on reducing air pollution.⁽⁶⁰⁾ Despite potentially large cost savings, trading has been limited under most of the state and federal trading programs.⁽⁶¹⁾
 

Although most trading programs have been implemented in the past decade, the Environmental Protection Agency (EPA) began experimenting with pollutant trading under the Clean Air Act in the 1970's.⁽⁶²⁾ Those early experiments matured into EPA's 1986 Clean Air Act emissions trading policy for "criteria" pollutants, including sulfur dioxide, nitrogen dioxide, particulates, carbon monoxide, lead, and ozone.⁽⁶³⁾ Under the policy, companies are allowed to build new major air pollution sources⁽⁶⁴⁾ or make major modifications to major air pollution sources in areas of the country where national air pollution standards are not being met, ⁽⁶⁵⁾ if the companies build the source to meet certain technology-based standards and enter into an agreement with an existing air pollution source in the area, whereby the existing source reduces its pollution output by at least as much pollution as the new or modified source plans to discharge.⁽⁶⁶⁾ The policy refers to the reductions as "emission reduction credits,"⁽⁶⁷⁾ which can be used to "offset" proposed pollution increases. While companies can obtain offsets by entering into agreements with other companies, they can also obtain offsets by reducing the output of pollution from another source that they own in the polluted area where the new or modified source will be sited.⁽⁶⁸⁾ Since increases in air pollution by new sources are offset by reductions from existing sources, the offset program should ensure that air quality remains at least as good, if not better, than it would be without the program. While the program promises cost savings for businesses, very few companies have made offset trades with other companies.⁽⁶⁹⁾
 

The emissions trading policy also formalized the concepts of "bubbles" and "netting" for air pollution regulation. The "bubble" policy allows regulators to treat several existing air pollution emission points within an air quality control region as a single "source" for purposes of determining whether the emission points are complying with technology-based air pollution limits.⁽⁷⁰⁾ "Netting" allows regulators to treat several air pollution emission points within a plant as a single "source" for purposes of determining whether a modification to the plant, or construction of a new portion of the plant, triggers stringent technology-based limits and permit requirements for the plant.⁽⁷¹⁾
 

While EPA's emission trading policy was the agency's first major foray into pollutant trading, the sulfur dioxide emission trading program created by the 1990 Clean Air Act Amendments⁽⁷²⁾ is quickly becoming the model for pollutant trading programs at the federal and state levels. The trading program is designed to reduce sulfur dioxide emissions from coal-fired electric power plants in half by early in the next century. During Phase I of the program, which began in 1995 and ends in 2000, 110 of the dirtiest power plants were given annual "allowances" to emit 2.5 pounds of sulfur dioxide for every million Btu consumed by the plant.⁽⁷³⁾ During Phase II, which begins in 2000, all power plants that produce more than 25 megawatts will be given "allowances" to emit 1.2 pounds of sulfur dioxide for every million Btu consumed by the plant.⁽⁷⁴⁾ Total emissions from all of the plants are capped at 8.95 million tons of sulfur dioxide at the end of the program.⁽⁷⁵⁾ Utilities can trade allowances with other utilities, bank allowances for up to 30 years, and buy allowances at an annual auction sponsored by EPA.⁽⁷⁶⁾ While the program targets coal-fired power plants, industrial facilities that burn fossil fuels can also "opt-in" to the program.⁽⁷⁷⁾ Utilities covered by the program have achieved 100% compliance with its requirements in Phase I⁽⁷⁸⁾, and the program is having significant environmental and economic benefits.⁽⁷⁹⁾
 

In addition to the sulfur dioxide trading program and EPA's emission trading policy, EPA has implemented pollutant trading programs to phase out production of various types of chlorofluorocarbons and halons⁽⁸⁰⁾, and to phase out the use of lead in gasoline.⁽⁸¹⁾
 

States have also implemented pollutant trading programs, primarily to address air pollution problems. Regulators in Los Angeles have implemented the Regional Clean Air Incentives Market (RECLAIM) to reduce emissions of sulfur dioxide and nitrogen oxides.⁽⁸²⁾ The program initially targeted sources that emit 95% of the total emissions of nitrogen oxides and 66% of the total emissions of sulfur dioxide⁽⁸³⁾, and regulators project that it will cost businesses 42% less than a traditional command and control program.⁽⁸⁴⁾ Under the trading program, the South Coast Air Quality Management District (SCAQMD), the agency that regulates air pollution in the Los Angeles air quality control region, assigns a finite number of emission credits to the sources, based on historical emission patterns, and assigns fewer credits to sources each year, until the emissions are capped, in 2003, at a level that meets national air quality standards for sulfur dioxide and nitrogen oxides for the region.⁽⁸⁵⁾ Air pollution sources can trade credits, but the credits can only be used in the year that they are issued.⁽⁸⁶⁾ The SCAQMD has also implemented two controversial initiatives to encourage nitrogen oxide emission reductions. Under one SCAQMD rule, companies can earn RTCs by buying and scrapping homeowners' gasoline-powered lawn mowers and other garden equipment.⁽⁸⁷⁾ The rule is modeled on another SCAQMD program that allows companies to earn emission reduction credits by buying and scrapping heavily-polluting automobiles.⁽⁸⁸⁾
 

The Texas Air Control Board administers a trading program for several pollutants that contribute to ozone pollution in the Houston air quality control region⁽⁸⁹⁾, and the program includes an automobile scrapping program similar to the California program.⁽⁹⁰⁾
 

While the state and Federal pollutant trading programs promise to reduce pollution in a "cost-effective" manner, these programs could disparately impact low-income communities. First, while some trading programs limit trading to a specific air quality control region, many trading programs do not any include geographic limits on trades. As a result, while trading programs may decrease overall pollution levels, they may increase pollution in certain areas and create "toxic hot spots." Older, heavily polluting industries may find that it is more cost-effective to continue polluting and to buy pollution rights than to install new technologies to reduce pollution, and communities surrounding those industries will be exposed to higher levels of pollution than other communities. Professors Bruce Ackerman and Richard Stewart, early advocates of pollutant trading programs, recognized the "hot spot" problem over a decade ago⁽⁹¹⁾, and recent commentators⁽⁹²⁾ and environmental justice advocates⁽⁹³⁾ echo their concerns today.⁽⁹⁴⁾

Even without trading programs, "grandfathering" provisions in environmental laws that establish more lenient standards for existing polluters than new polluters provide incentives for old, heavily polluting industries to continue to pollute.⁽⁹⁵⁾ Trading programs will provide additional incentives for those facilities to continue to pollute, and will exacerbate the distributional inequities that are already caused, in part, by "grandfathering" provisions.⁽⁹⁶⁾
 

If the trading programs will create "toxic hot spots," economic theory suggests that the hot spots will most likely occur in low-income communities.⁽⁹⁷⁾ Low income communities are disproportionately impacted by air pollution⁽⁹⁸⁾, the siting of locally unwanted land uses (LULUs)⁽⁹⁹⁾, and the siting of heavily polluting industries.⁽¹⁰⁰⁾ This trend should continue as pollution trading programs expand for several reasons that are grounded in economic theory. First, heavily polluting industrial facilities (the facilities that may purchase pollution credits) will more likely be sited in low income, urban areas than in middle to upper income, suburban areas.⁽¹⁰¹⁾ Second, low income communities may be less likely than affluent communities to urge an outdated, heavily polluting industry to implement new pollution controls, instead of buying pollution rights, if the low income community fears that the industry will close, depriving the community of essential jobs and tax revenue, if the community urges the industry to adopt new pollution controls. Finally, low income communities often lack the political power to influence industries to adopt new pollution controls instead of buying pollution rights.⁽¹⁰²⁾
 

As trading programs proliferate, examples of the disparate impacts of such programs have begun to proliferate as well. For instance, Citizens for a Better Environment and the NAACP Legal Defense Fund recently challenged the auto scrapping program of the South Coast Air Quality Management District on the grounds that the program discriminates against minorities in violation of federal civil rights laws.⁽¹⁰³⁾ Over the past few years, oil companies have scrapped 17,000 cars to generate emission reduction credits that enable the companies to avoid installing vapor-recovery systems at oil refineries in low-income, Latino communities.⁽¹⁰⁴⁾ The auto scrapping program has, therefore, concentrated thousands of pounds of pollution that were previously dispersed throughout the air quality control region, into several low income, minority communities.⁽¹⁰⁵⁾
 

Future pollutant trading programs may create additional toxic hot spots if regulators do not design the programs to prevent such inequities. In the next few years, the sulfur dioxide trading program will expand significantly,⁽¹⁰⁶⁾ and several major pollutant trading programs may be launched.
 

Eleven northeastern States and the District of Columbia⁽¹⁰⁷⁾ have agreed to implement a pollutant trading program, beginning in 1999, to reduce emissions of nitrogen oxides from utilities and industrial boilers.⁽¹⁰⁸⁾ EPA is developing a rule that would establish a similar cap and trade program to reduce nitrogen oxide emissions in the 37 states that are located east of the Mississippi River.⁽¹⁰⁹⁾ Both proposals include an overall cap on emissions, but do not impose any geographic limit on pollutant trades within the areas covered by the program. Accordingly, both programs have the potential to create "toxic hot spots."
 

Heavily polluting, outdated power plants may have additional incentives to continue operating, and creating "toxic hot spots," when the Federal government and State governments complete the ongoing restructuring of electric power transmission regulation. In 1996, the Federal Energy Regulatory Commission began a process that will require utilities to provide open access non-discriminatory transmission services over their power lines.⁽¹¹⁰⁾ This will allow utilities to deliver power to a wider distribution area and, presumably, lead to more cost-efficient energy production.⁽¹¹¹⁾ EPA and public interest groups criticized the proposal because it could increase the market for older, heavily polluting power plants and could encourage utilities to continue operating those plants.⁽¹¹²⁾ Accordingly, the proposal could lead to the creation of "toxic hot spots" of pollution around the power plants⁽¹¹³⁾, and downwind from the plants.⁽¹¹⁴⁾ FERC prepared an environmental impact statement for its proposal and concluded that the open access rule would not result in significant overall increases in nitrogen oxide emissions, and that any distributional inequities or other environmental concerns should be addressed by EPA through EPA's nitrogen oxide strategy under the Clean Air Act⁽¹¹⁵⁾. Utilities are lobbying Congress to include air pollution controls in electricity deregulation legislation⁽¹¹⁶⁾, and the Clinton Administration recently announced plans for electric utility restructuring legislation that would establish a national nitrogen oxide trading emissions open trading program.⁽¹¹⁷⁾
 

The Clinton Administration might also seek legislation to establish a trading program to reduce carbon dioxide and other greenhouse gas emissions.⁽¹¹⁸⁾ The Administration plans to sign the Kyoto Protocol to the United Nations Framework Convention on Climate Change⁽¹¹⁹⁾, and believes that a trading program would enable the United States to reduce its greenhouse gas emissions to the levels required by the treaty in a cost-effective manner⁽¹²⁰⁾.
 

In addition to those air pollution emissions trading programs, EPA and States are expected to establish more water pollution effluent trading programs. In order to encourage States to adopt trading programs, EPA recently issued a Draft Framework for Watershed-Based Trading.⁽¹²¹⁾ Polluters would still have to meet technology-based water pollution standards, if any apply to them, under the trading programs.⁽¹²²⁾ However, polluters could avoid reducing their pollution discharges beyond technology-based limits to meet limits that are necessary to protect water quality⁽¹²³⁾ by entering into agreements with other polluters, who will reduce their pollution discharges beyond levels required by law.⁽¹²⁴⁾ Assume, for instance, that a sewage treatment plant and several farms are located in the watershed of the Mercer River⁽¹²⁵⁾, and that the river is polluted by excess nutrients. In an effluent trading program, instead of installing expensive pollution controls to reduce its own nutrient discharges, the sewage treatment plant could enter into an agreement with the farms, whereby the farms would agree to change their farming practices to reduce their nutrient discharges. A few States and local governments have implemented effluent trading programs,⁽¹²⁶⁾ and EPA hopes that its "Framework" for trading will encourage more governments to implement such programs⁽¹²⁷⁾.
 

Consequently, to the extent that pollutant trading programs disparately impact low income communities, those inequities may be compounded in the near future as regulators launch the new trading initiatives described in this section.
 

Pollution taxes, fees and charges⁽¹²⁸⁾ promise to reduce pollution in cost-effective ways similar to pollutant trading programs. However, so far, the Federal government and state governments have been reluctant to take advantage of those tools.⁽¹²⁹⁾
 

The Federal government has used pollution taxes to phase out the production of various chlorofluorocarbons⁽¹³⁰⁾ and to encourage auto makers to manufacture fuel efficient cars⁽¹³¹⁾. The Federal government has also considered adopting a carbon tax, or other energy tax, to spur energy conservation and to reduce greenhouse gas emissions.⁽¹³²⁾ In addition, the Clean Air Act specifically endorses pollution taxes as a tool for States to comply with national air quality standards.⁽¹³³⁾ However, most pollution taxes, charges and fees have been implemented by States, rather than the Federal government.⁽¹³⁴⁾
 

Some states have imposed fees on the sale of tires⁽¹³⁵⁾ or fertilizers⁽¹³⁶⁾, in order to finance the cleanup of improper tire disposal sites and inspection of fertilizers. Several states impose variable

fees on polluters for water pollution permits⁽¹³⁷⁾ or air pollution permits⁽¹³⁸⁾, based on the volume or toxicity of the pollution authorized by the permit. Municipalities often adopt a similar approach when they establish fees for persons or businesses that dispose of wastewater in a sewage treatment plant.⁽¹³⁹⁾ While those fees provide some incentive to polluters to reduce their pollution, the primary purpose for most of those fees is to raise revenue to cover the costs of administering the permit or regulatory program.⁽¹⁴⁰⁾
 

By contrast, many municipalities are implementing variable waste disposal fees, a pollution tax system that primarily aims to reduce pollution, rather than to raise revenue.⁽¹⁴¹⁾ In a variable rate waste disposal program, residents pay variable waste disposal fees, depending on the amount of waste that they dispose, instead of paying uniform fees.⁽¹⁴²⁾ This creates an incentive for residents to reduce the amount of waste that they generate. Waste disposal rates have been reduced significantly in cities that have implemented variable rate waste disposal fees.⁽¹⁴³⁾
 

While variable rate waste disposal fees, energy taxes, and other pollution taxes, fees and charges promise to reduce pollution in cost effective ways, they can also perpetuate environmental injustices. First, if governments impose uniform tax rates on pollution discharges based on the volume or toxicity of the discharge, without regard to the location of the discharge, pollution taxes could create "toxic hot spots" in the same manner as pollutant trading systems.⁽¹⁴⁴⁾ It may be more cost effective for old, heavily polluting industries to pay pollution taxes than to reduce their pollution discharges, especially when the taxes are not set at rates to force polluters to reduce pollution.⁽¹⁴⁵⁾ Unless governments tax pollution in heavily polluted areas at a higher rate than pollution in other areas, only newer, cleaner industries will have any incentive to reduce their pollution.⁽¹⁴⁶⁾
 

More significantly, though, pollution taxes could have regressive effects on low income communities.⁽¹⁴⁷⁾ For instance, since low-income households spend a greater proportion of their income on heat, electricity and gasoline than high income households, low income households would feel the impacts of an energy tax much more keenly than high income households.⁽¹⁴⁸⁾ Similarly, variable rate waste disposal fees impose more significant financial burdens on low income residents than high income residents.⁽¹⁴⁹⁾ At least one commentator has suggested that low income communities should bear a greater proportional share of pollution reduction costs, because those communities will receive the greatest benefit from pollution reductions.⁽¹⁵⁰⁾ Following that logic one step further, though, shouldn't the communities that benefitted from the existing inequitable distribution of pollution be taxed for those benefits? Couldn't that money be used to compensate the communities that have endured heavier pollution burdens? More sensitive commentators have suggested that pollution taxes could be structured at different rates⁽¹⁵¹⁾ or coupled with subsidies or other companion measures⁽¹⁵²⁾ to be more progressive.
 

While governments may increasingly turn to pollution taxes, fees and charges in the future⁽¹⁵³⁾, they should structure such programs to avoid these potential inequitable impacts.
 

Project XL is another market-based reform that could disparately impact low-income communities. Through Project XL, which stands for "excellence in leadership," EPA has committed to approve 50 pilot projects to examine innovative ways to achieve environmental and public health protection in a more cost effective manner.⁽¹⁵⁴⁾ In Project XL, EPA enters into agreements with polluters that authorize the polluters to avoid certain regulatory and legal requirements if the polluter can operate his business in a manner that achieves "superior environmental results" and meets certain other criteria.⁽¹⁵⁵⁾ EPA hopes that the initiative will stimulate regulatory flexibility, and will create models for future reforms.⁽¹⁵⁶⁾
 

In a Project XL pilot project, EPA might (a) authorize emissions trading, caps or bubbles that are not otherwise authorized by law⁽¹⁵⁷⁾; (b) waive permit or reporting requirements or procedures to allow businesses to consolidate permits or reports⁽¹⁵⁸⁾; or (c) allow businesses to comply with performance standards instead of applicable technology-based standards.⁽¹⁵⁹⁾
 

EPA waives or modifies regulatory and legal requirements in Project XL pilot projects in order to achieve environmental protection in a more cost effective manner. However, these waivers may actually increase pollution in the communities surrounding the pilot project, because determining whether a project produces "superior environmental results" is a very subjective task. First, it is difficult to calculate baseline pollution levels, in order to determine whether a project increases or decreases pollution.⁽¹⁶⁰⁾ Second, Project XL pilot projects may decrease discharges of one pollutant, but increase the production of another pollutant, or may transfer pollution from one medium to another.⁽¹⁶¹⁾ While the project might seem, initially, to produce "superior environmental results," it could aggravate health or environmental impacts to the surrounding community due to the synergistic or cumulative impacts of the new pollutant or new discharge, coupled with existing pollution.⁽¹⁶²⁾ Those impacts might not be apparent without detailed study and analysis.
 

To the extent that Project XL pilot projects will increase pollution levels in particular communities, it is likely that the projects will disparately impact low income communities. Project XL pilot projects are developed through a very time consuming, technical process, and involve detailed analysis of industrial processes and economics. While affluent communities will be able to hire consultants and experts to evaluate the pilot project proposals, and to comment on those proposals, or to hire legal experts to challenge the validity of the agency's agreements, it will be more difficult for lower-income communities to shoulder those expenses.⁽¹⁶³⁾ As a result, to the extent that the Project XL pilot project development process frustrates the ability of low-income communities to participate in the process, it is more likely that EPA will enter into Project XL agreements that increase pollution in those communities than in affluent communities. However, potential disparate impacts of Project XL may not be a major concern for any communities because the program has not been very successful thus far.⁽¹⁶⁴⁾
 

Brownfields⁽¹⁶⁵⁾ redevelopment initiatives may raise some of the same concerns regarding inequitable treatment of communities as Project XL pilot projects. Through EPA's Brownfields Action Agenda and State voluntary cleanup programs, the Federal government and state governments are providing liability limitations⁽¹⁶⁶⁾, grants, loans, tax breaks,⁽¹⁶⁷⁾ and other economic incentives to developers to encourage them to clean up and redevelop property that has been contaminated by toxic or hazardous substances.⁽¹⁶⁸⁾ In many cases, regulators encourage developers to redevelop property by streamlining the cleanup process for the contaminated property, or by establishing site-specific cleanup standards for the property.⁽¹⁶⁹⁾
 

Critics of EPA's Brownfields Agenda and State voluntary cleanup programs (collectively referred to as "brownfields programs") argue that the streamlined, site-specific cleanup standards provide less protection to public health and the environment than standards that would otherwise apply to the cleanup of the property.⁽¹⁷⁰⁾ Most brownfield properties are located in inner city communities, rather than suburban or rural communities.⁽¹⁷¹⁾ Accordingly, critics argue that brownfield programs could force inner city communities to accept substandard environmental cleanups.
 

On the other hand, though, critics of Superfund often assert that Superfund cleanup standards are unnecessarily overprotective.⁽¹⁷²⁾ EPA defends brownfields programs by pointing out that (a) cleanup standards under those programs must, at a minimum, protect human health⁽¹⁷³⁾; and (b) most brownfields properties would not be cleaned up at all without a brownfields program.⁽¹⁷⁴⁾ In addition, the redevelopment can revitalize the communities, and bring back businesses and jobs.⁽¹⁷⁵⁾ Accordingly, many environmental justice advocates praise brownfields programs.⁽¹⁷⁶⁾ At the same time, though, most caution that brownfields programs can only protect and revitalize communities if the communities are provided with opportunities for "full and informed" participation in the cleanup and redevelopment process.⁽¹⁷⁷⁾
 

Although many of the "market-based" reforms that have been instituted could exacerbate problems of environmental injustice, a few reforms could potentially reduce inequities. Pollution prevention and multimedia initiatives are the reforms that hold the most promise for environmental justice.⁽¹⁷⁸⁾
 

Instead of regulating the manner in which pollution is managed or disposed after it is created, pollution prevention initiatives attempt to reduce pollution at the source⁽¹⁷⁹⁾, and prevent businesses from creating pollution in the first place.⁽¹⁸⁰⁾ It is appropriate to label pollution prevention as a "market-based" reform because pollution prevention practices can save businesses millions of dollars, and enable businesses to operate more efficiently and reduce waste.⁽¹⁸¹⁾
 

At the same time, pollution prevention initiatives can reduce the amount of toxic substances in the environment, reduce worker exposure to toxic substances, reduce the potential for accidents and spills in transporting toxics, and reduce the amount of toxic substances in consumer products.⁽¹⁸²⁾ The "environmental justice" benefits of pollution prevention are obvious. If pollution prevention initiatives actually reduce pollution, they reduce the likelihood that low income communities will be disparately impacted by cumulative or synergistic exposure to multiple pollutants. EPA considers pollution prevention to be the most effective tool to battle environmental injustice.⁽¹⁸³⁾
 

Congress enacted the Pollution Prevention Act of 1990 to encourage businesses to adopt pollution prevention measures. Legislators felt that mandatory pollution prevention requirements would stifle innovation⁽¹⁸⁴⁾, so the law focuses on providing information⁽¹⁸⁵⁾, grants⁽¹⁸⁶⁾, and other incentives to encourage voluntary pollution prevention.⁽¹⁸⁷⁾ EPA has launched dozens of initiatives aimed at encouraging voluntary pollution prevention, including its 33/50 initiative⁽¹⁸⁸⁾, Waste Wise⁽¹⁸⁹⁾, and Design for the Environment⁽¹⁹⁰⁾ initiatives.⁽¹⁹¹⁾
 

In addition, EPA has used its negotiating leverage in enforcement actions to encourage businesses to adopt pollution prevention practices.⁽¹⁹²⁾ In appropriate circumstances, EPA will agree to reduce the financial penalty that it is seeking from a polluter to settle an enforcement action if the polluter agrees to implement a "supplemental environmental project (SEP)."⁽¹⁹³⁾ Supplemental environmental projects can include pollution prevention projects, pollution reduction projects, environmental assessments and audits, and similar projects.⁽¹⁹⁴⁾ Instead of paying money into the Federal Treasury, the polluter can invest money in a project that will improve the performance of its business and reduce the likelihood that the polluter will violate environmental laws in the future.⁽¹⁹⁵⁾ EPA benefits because the project improves the quality of the environment and/or public health, and EPA would not have been able to require the polluter to undertake the project if the polluter did not agree to implement the project in order to settle the enforcement action.⁽¹⁹⁶⁾ EPA's SEP policy explicitly encourages the agency to use SEPs as a tool to reduce environmental injustice.⁽¹⁹⁷⁾
 

Despite the efforts of Congress and EPA, many businesses have not yet adopted pollution prevention practices.⁽¹⁹⁸⁾ Some mandatory measures, such as pollution prevention planning requirements, may be necessary to spur additional pollution prevention.⁽¹⁹⁹⁾
 

Multimedia initiatives provide similar economic and environmental benefits as pollution prevention initiatives. Traditionally, environmental laws and programs focused on controlling and managing pollution in the air, water and land separately.⁽²⁰⁰⁾ This single-media approach encourages businesses and regulators to focus on "end of pipe" pollution controls⁽²⁰¹⁾, and inadvertently causes pollution to be transferred from one medium to another.⁽²⁰²⁾
 

Recently, governments have begun to experiment with multimedia initiatives to address air, water, and land discharges of a particular pollutant or polluter simultaneously. When the agency examines the air, water, and land discharges of a pollutant or polluter simultaneously, the agency can

create a more efficient, less expensive⁽²⁰³⁾ regulatory regime for businesses by eliminating duplicative, conflicting and inefficient requirements that often arise in single-media permitting and regulation.⁽²⁰⁴⁾ More importantly, when the agency examines all of the impacts of a polluter or pollutant simultaneously, the agency can identify cumulative or synergistic impacts more readily, and the agency can take steps to ensure that pollution is prevented or reduced, rather than redistributed to low income communities.
 

EPA and States have implemented several noteworthy multimedia initiatives. First, EPA recently issued multimedia regulations that limit air and water emissions from pulp and paper companies.⁽²⁰⁵⁾ The regulations were the agency's first multimedia regulations, and encourage companies to substitute chlorine dioxide for chlorine to reduce dioxin and furan emissions from paper manufacturing.⁽²⁰⁶⁾ EPA has also reorganized many of its offices to facilitate multimedia initiatives.⁽²⁰⁷⁾
 

In the States, Massachusetts has adopted a program to conduct multimedia inspections of polluters and to bring multimedia enforcement actions, whenever possible.⁽²⁰⁸⁾ New Jersey is experimenting with multimedia permits to replace a multitude of single-media permits.⁽²⁰⁹⁾ New York has assigned employees of the state environmental agency to individual industrial plants to coordinate multimedia planning at those plants.⁽²¹⁰⁾ EPA has provided funding for many of those experiments, and encourages States to continue those initiatives.⁽²¹¹⁾
 

Although EPA and States are experimenting with multimedia approaches, there are many barriers to broader adoption of those approaches. Environmental laws and the organizational structure of environmental agencies make it difficult to establish multimedia permitting, regulatory, or enforcement programs.⁽²¹²⁾ In addition, multimedia programs are complex, costly and time consuming for government.⁽²¹³⁾ While multimedia initiatives provide clear benefits for low income communities and the public at large, legislative changes and increased funding may be necessary to spur their continued growth.⁽²¹⁴⁾
 

Pollution prevention and multimedia reforms advance environmental justice because they focus on reducing pollution, while many "market-based" reforms merely attempt to redistribute pollution in a more "cost-effective" manner. However, as noted in the introduction of this article, while the "market-based" reforms generally provide cost savings to polluters over command and control approaches, many of the reforms do not allocate resources "efficiently" because low income communities often (a) lack information about the decisions that are being made that will adversely affect the health and environment of their community; (b) lack the financial resources to participate in that decisionmaking process; and (c) lack notice of, and the opportunity to participate equally in, that decisionmaking process. In short, market failures prevent the efficient allocation of environmental and public health amenities ("resources").
 

Since Congress and EPA will continue to implement "market-based" environmental reforms, this section of the article examines some of the ways that laws could be reformed to empower low-income communities to participate more fully in the market for environmental or public health benefits. When those reforms correct the existing market failures, perhaps the market will allocate resources more efficiently.
 

Theoretically, markets operate "efficiently" if consumers have perfect information.⁽²¹⁵⁾ In practice, consumers almost never have perfect information.⁽²¹⁶⁾ In the environmental arena, as a result, a community may be unaware that a particular action could adversely affect the health or environment of the community, and the community may, therefore, not bargain with the actors to prevent the action. If the community had more information, they might have bargained with the actor to prevent the harm. In such a situation, the market allocates resources inefficiently because consumers have imperfect information.
 

One obvious way to address this market failure, and to foster environmental justice, is to improve consumers' access to information. Market-based reforms could include provisions that required participants, or the government, to provide detailed information to communities about the potential environmental and public health impacts of pollution trades, waivers or modifications of regulatory requirements, or similar market-based initiatives. Existing "information disclosure" laws should also be expanded and improved. Those "information disclosure" requirements would reduce, but not eliminate, the likelihood that the market would allocate resources inefficiently.⁽²¹⁷⁾ "Information disclosure" provisions would also promote individual autonomy and advance democratic decisionmaking.⁽²¹⁸⁾
 

Over the past decade, Congress, EPA and the States have increasingly relied on "information disclosure" laws to produce environmental benefits in economically efficient ways. The Emergency Planning and Community Right to Know Act of 1986 (EPCRA)⁽²¹⁹⁾ is the most notable of those efforts,⁽²²⁰⁾ and is a model for laws in other nations.⁽²²¹⁾ EPCRA requires thousands of manufacturing facilities to provide EPA and States with information about the quantity of regulated chemicals that they used or released into the air, water, or land in a previous year.⁽²²²⁾ That information is made available to the public as a "Toxic Release Inventory" (TRI). EPA calls the TRI one of its most effective and powerful tools for improving environmental performance.⁽²²³⁾ Facilities that report their pollution releases for the TRI reduced their releases by 44% in the first six years of reporting.⁽²²⁴⁾ Theoretically, citizens, armed with TRI data, can negotiate with polluters to encourage them to reduce their releases, lobby legislators or agencies to limit pollution, boycott polluters, or even use the information as a basis for citizen suits when the information discloses violations of other environmental laws.⁽²²⁵⁾ The release of the information fosters environmental justice, as well, because it enables governments and citizens to identify and act to prevent "hot spots" of pollution.

Other federal initiatives have also included "information disclosure" requirements. Recent revisions to the Safe Drinking Water Act require drinking water suppliers to provide consumers with reports about the source of their drinking water, the health and environmental effects of contaminants in their drinking water, and the compliance history of the drinking water supplier.⁽²²⁶⁾ EPA recently launched a "consumer labeling initiative" to improve the quality of health and environmental information on insecticide, pesticide, and household cleaner labels⁽²²⁷⁾, and the Federal Trade Commission has issued "green marketing guidelines" to prevent businesses from making false or misleading advertising claims about the environmental benefits of products.⁽²²⁸⁾ All of these initiatives provide consumers with more complete information, so that they can make informed choices about purchasing products or using resources in a way that protects their health and environment.
 

Information disclosure requirements are central to many recent State laws, as well. For instance, California's Proposition 65 requires businesses to provide notices to the public about exposures to toxic chemicals⁽²²⁹⁾ in consumer products, at work, and in the environment.⁽²³⁰⁾ The law aims to provide information to the public that will enable citizens to reduce their exposure to toxic chemicals,⁽²³¹⁾ and will encourage businesses to reduce their use or release of toxics.⁽²³²⁾ The law has successfully encouraged many companies to reformulate consumer products to reduce the use of toxics in the products⁽²³³⁾, and has played some role in encouraging businesses to reduce releases of toxics at work and in the environment.⁽²³⁴⁾
 

There are some limits to the effectiveness of "information disclosure" laws, though. The information that the laws provide to consumers may be incomplete⁽²³⁵⁾, inaccurate⁽²³⁶⁾, or confusing⁽²³⁷⁾ at times. In addition, the public may not be aware that the information exists⁽²³⁸⁾, or they may be unable to access or understand the information.⁽²³⁹⁾ In those situations, it is less likely that the "information disclosure" laws will achieve their goal of empowering citizens to use the market to protect health and the environment.⁽²⁴⁰⁾
 

Accordingly, legislators and regulators should take several steps to incorporate "information disclosure" requirements into market-based reforms, and to expand and improve the "information disclosure" requirements in existing laws, like EPCRA, to provide more complete and accurate information.⁽²⁴¹⁾ Data that agencies collect under any of the environmental laws should be cross-linked and integrated, so that the information will be more meaningful and accessible to the public.⁽²⁴²⁾ In order to increase access to information, data collected by agencies should be made available in electronic formats, whenever possible, preferably over the Internet.⁽²⁴³⁾ Steps should be taken to educate the public about the availability of information, and the meaning of the information. While agencies should lead this effort,⁽²⁴⁴⁾ law schools could play an important role as community educators by holding seminars or workshops, providing "Street Law" courses in local schools⁽²⁴⁵⁾, or developing web pages or community handbooks that explain the information.⁽²⁴⁶⁾ Finally, the citizen suit and penalty provisions of "information disclosure" laws should be strengthened to encourage businesses to provide complete and timely information.
 

These changes should increase the possibility that accurate and complete environmental and health information will be available to citizens, and that citizens will (a) know that the information is available; (b) access the information; (c) understand the information; and (d) act on the information in a manner that protects their health and the environment. In short, the improvements should compensate for some of the market failures that occur because communities lack information about the health and environmental impacts of polluters' actions.
 

Low-income communities may also fail to participate in the market for health and environmental benefits because the communities do not have sufficient financial resources to bargain for those benefits, or even to participate in the decisionmaking process. In a market-based system, low-income communities may never have sufficient resources to successfully bargain for environmental or health benefits.⁽²⁴⁷⁾ However, technical assistance grants and loans could be made available to communities that would, at the very least, enable them to participate in the decisionmaking process. Without that assistance, communities may be unable to retain experts to evaluate the environmental and health impacts of pollution trades, waivers or modifications of environmental regulations for Project XL projects or brownfield redevelopment, or other market-based actions.⁽²⁴⁸⁾ Consequently, the communities would be unable to determine the impacts of the proposed action, and would be seriously disadvantaged in the environmental bargaining (decisionmaking) process.
 

While there are some grants available to communities to assist communities in reviewing Project XL pilot programs and brownfields redevelopment proposals⁽²⁴⁹⁾, public interest advocates argue that the funding is inadequate, the process for obtaining the funds is difficult, and that there are unnecessary limits on the use of funds.⁽²⁵⁰⁾ In addition, there are no programs that provide funds to communities to evaluate the impacts of pollutant trades on the community.
 

Legislators and regulators could take several steps to facilitate the participation of low-income communities in the market-based decisionmaking process. First, technical assistance grants to review trades, waivers and other market-based actions could be expanded and simplified and targeted at low-income communities or communities that have been disparately impacted by pollution. Technical assistance grants for traditional command and control programs should also be expanded and simplified to enable low-income communities to participate in those decisionmaking processes.⁽²⁵¹⁾ After all, many of the environmental and health problems in low income communities are caused by the cumulative effects of actions under the traditional command and control programs. Finally, legislators and regulators should provide more funding to encourage pollution prevention, since pollution prevention is the surest cure for environmental injustice. ⁽²⁵²⁾
 

While technical assistance grants and loans may increase the likelihood that a community can afford to participate in environmental decisionmaking in market-based programs, other obstacles have limited public participation by low-income and minority communities in environmental decisionmaking in the past.⁽²⁵³⁾ Traditionally, in many command and control programs, communities have not been provided with information or an opportunity to provide input in the process until the government has, for all intents and purposes, selected a course of action.⁽²⁵⁴⁾ Public meetings and hearings have been scheduled at times or locations or in formats that limit opportunities for public participation.⁽²⁵⁵⁾
 

Limited public participation procedures increase the likelihood that individual citizens will forego participation in government decisionmaking because they may decide that they will not be able to influence the ultimate decision, or that they will not be sufficiently impacted by the government's proposed action to devote the time and energy to participate. As a result, although a community may be cumulatively severely impacted by the government's decision to waive regulatory requirements or allow companies to trade pollution rights, limited participation procedures may prevent individual citizens from actively participating in the decisionmaking process. While limited public participation clearly harms communities, it also harms the government, which makes decisions based on incomplete information.⁽²⁵⁶⁾ When governments make decisions based on incomplete information, it is more likely that their decisions will not allocate resources efficiently.
 

Accordingly, broad and flexible public participation procedures should be included in all polutant trading, regulatory waiver or variance programs, or other market-based environmental protection programs, to enable low-income communities, and all citizens, to participate in the market for health and environmental amenities. In addition, broad and flexible public participation procedures should be incorporated into traditional command and control programs to ensure that baseline pollution levels in low income communities are not disproportionately high before trading or other market-based programs are implemented.
 

The National Environmental Justice Advisory Council's Model Plan for Public Participation identifies several "core values" for public participation programs⁽²⁵⁷⁾ and establishes a model public participation strategy, which includes identifying key individuals who can represent various stakeholder interests, soliciting stakeholder involvement early in the policy-making process, developing relationships with community organizations and providing resources for their needs, regionalizing materials to ensure cultural sensitivity and relevance, establishing site-specific community advisory boards where there is sufficient and sustained interest, and scheduling meetings and/or hearings to make them accessible and user friendly for stakeholders, among other recommendations.⁽²⁵⁸⁾

Environmental justice advocates have frequently emphasized the central role of public participation in achieving environmental justice in traditional command and control programs.⁽²⁵⁹⁾ In market-based programs, it is even more important to provide opportunities for public participation because market-based programs reduce the role of the government as a decisionmaker and, consequently, reduce the protections afforded to minority interests.⁽²⁶⁰⁾
 

Federal and state governments are already making efforts to improve public participation procedures in command and control programs. RCRA, NEPA, and many other laws already allow, but don't require, agencies to provide broader, more flexible public participation procedures, and President Clinton's environmental justice Executive Order encourages federal agencies to take advantage of those authorities.⁽²⁶¹⁾
 

EPA is also including broad public participation provisions in some of its recent market-based programs, such as Project XL⁽²⁶²⁾. While public participation requirements could increase the administrative hurdles for market-based programs and, thereby, reduce the incentive to persons to participate in those programs, broad and flexible participation procedures are vital to ensuring that affected communities will have the opportunity to participate in the decisionmaking process, and that decisionmakers will have complete information for their decisions.
 

As noted above, "market-based" environmental reforms and traditional environmental laws could be modified to address some of the market failures that prevent "efficient" distribution of environmental and public health resources in a free market. However, while the modifications described above might enable low-income communities to play a more active role in market-based environmental decisionmaking, existing disparities in the distribution of wealth in society may ultimately prevent low income communities from avoiding disproportionate exposure to pollution. Consequently, command and control "safety nets" may be necessary to protect low-income communities in a market-based environmental protection system.
 

While the inequitable distribution of pollution in low-income communities has been blamed on many factors, most commentators agree that one of the major contributing factors is the failure of the environmental laws to require government regulators to consider the distributional impacts of their regulatory, permitting, or enforcement decisions.⁽²⁶³⁾ Accordingly, in order to ensure that "market-based" reforms do not exacerbate environmental injustice, those reforms could be modified to prohibit trades, waivers of environmental laws or regulations, or other actions that disparately impact low income communities, or at least to require regulators to examine the impacts of those actions on low income communities. More broadly, perhaps "market-based" and "command and control" environmental laws could be modified to require governments to consider the distributional impacts of their decisionmaking, or to prohibit actions under those laws that have disparate impacts on low-income communities.
 

However, both approaches might be difficult to implement, politically and administratively. The narrow approach increases the government's role in reviewing and overseeing private actions in a market-based system, and seems antithetical to the rationale for the reforms. To the extent that the government prohibits certain trades or regulatory waivers that disparately impact low-income communities, or reviews the distributional impacts of trades, waivers, and other actions in a market-based system, businesses and the regulated community may be less likely to take advantage of those tools, which are often quite time-consuming.
 

In addition, in order to determine whether trades, waivers, and other actions in "market-based" programs disparately impact low-income communities, government regulators must collect and examine large amounts of data regarding the cumulative and synergistic impacts of pollution on the community and the demographics of the community.⁽²⁶⁴⁾ Like previous efforts to "fine-tune" environmental regulation, this information collection effort will be time consuming and expensive for regulators.⁽²⁶⁵⁾ Data gaps will be inevitable, and decisions that agencies make in light of those data gaps will be prone to legal challenge.⁽²⁶⁶⁾ Important legal terms, such as "low-income community" or "inequitable distribution" will have to be defined. These implementation problems have stalled previous efforts to "fine-tune" environmental regulation to focus more specifically on site-specific environmental impacts and case-by-case decisionmaking.⁽²⁶⁷⁾
 

The broader "safety net" approach shares all of the problems presented by the narrow approach because the broader approach encompasses the narrow approach. Under the broad approach, Congress would amend the existing environmental laws and market-based reforms to prohibit actions that disparately impact low-income communities or to require regulators to consider the distributional impacts of their actions under those laws. It is unlikely that Congress would adopt this approach because Congress has recently considered, and rejected, several bills that would have modified some of the current laws to require consideration of distributional impacts.⁽²⁶⁸⁾
 

Although Congress is unlikely to enact new legislation that requires government regulators to consider the distributional impacts of decisions under "market-based" environmental reform programs or under "command and control" environmental laws, existing laws, coupled with the environmental justice executive order⁽²⁶⁹⁾, may already require or authorize regulators to examine those issues to some extent.⁽²⁷⁰⁾
 

For instance, EPA's Environmental Appeals Board recently concluded that the executive order requires the agency to examine the environmental and public health impacts of RCRA permitting decisions on low-income communities, and that the omnibus clause of RCRA⁽²⁷¹⁾ requires EPA or States to include conditions in permits to ensure that the permits protect health or the environment of low-income communities (or any communities) and to deny permits when it is not possible to include conditions in the permit that protect the communities.⁽²⁷²⁾ Other "command and control" environmental laws contain similar omnibus clauses.⁽²⁷³⁾
 

Similarly, the National Environmental Policy Act and many State environmental policy acts require governments to consider distributional impacts and other socioeconomic impacts of proposed actions that impact the environment.⁽²⁷⁴⁾ The Nuclear Regulatory Commission's (NRC) Atomic Safety and Licensing Board recently denied a license for a uranium enrichment plant when the NRC failed to examine the distributional impacts of issuing the license, as required by NEPA and the environmental justice executive order.⁽²⁷⁵⁾

Finally, the environmental laws provide EPA and States with a great amount of discretion regarding enforcement of the laws⁽²⁷⁶⁾, and courts are reluctant to strike down an agency's decision to exercise its enforcement discretion in a particular manner as arbitrary and capricious.⁽²⁷⁷⁾ Accordingly, regulators could use their existing enforcement authorities more aggressively to reduce the disparate impacts of pollution on low-income communities.⁽²⁷⁸⁾ Traditional "command and control" laws could provide a partial "safety net" for low income communities in the absence of new legislative protections.
 

In the current era of anti-regulatory sentiment, it is clear that market-based environmental reforms will continue to proliferate and flourish. However, in a free market, low-income communities will never have sufficient financial resources to buy clean air, clean water and similar environmental and public health resources from wealthy communities or polluters. In addition, barriers to collective organization or public participation, imperfect information, or other market failures will often prevent low-income communities from even participating in the market for those resources. Consequently, market-based environmental reforms could exacerbate the inequitable distribution of pollution in low-income communities.
 

In the future, market-based reforms should address those market failures and include measures to prevent environmental injustice. The preceding section describes many ways that the reforms should be amended to enable low-income communities to bargain for environmental and health benefits on a more level playing field. Market-based programs should ensure that communities receive information about health and environmental benefits of proposed actions under the program in an inexpensive, timely, and accessible manner. The programs should make grants, loans and other economic assistance available to communities to enable the communities to evaluate the impacts of proposed actions and to participate in the decisionmaking process under the program. The programs should include broad and flexible public participation provisions to facilitate public access to the decisionmaking process.
 

While those reforms will make it easier for low-income communities to understand the impacts of proposed actions and to participate in the bargaining for environmental and health resources in the market, low-income communities will still lack the necessary financial resources to purchase the environmental and health resources due to the existing disparities in wealth distribution. Accordingly, some command and control "safety nets", such as limits on trades or waivers in particular communities, may be necessary to prevent market-based actions that would disparately impact those communities.
 

If governments adopt these modifications to market-based reforms, the programs could ultimately achieve both economic and equity goals. If not, market-based reforms will probably exacerbate the existing problems of environmental injustice.
 
 
 
 

1. See Bruce A. Ackerman & Richard B. Stewart, Reforming Environmental Law, 37 STAN. L. REV. 1333, 1334-35 (1985). See also ROBERT V. PERCIVAL, ENVIRONMENTAL REGULATION: LAW, SCIENCE AND POLICY 131-179 (2d ed. 1996) (describing command and control regulation and its alternatives); ROBERT C. ANDERSON & ANDREW Q. LOHOF, ENVIRONMENTAL LAW INSTITUTE, THE UNITED STATES EXPERIENCE WITH ECONOMIC INCENTIVES IN ENVIRONMENTAL POLLUTION CONTROL POLICY § 3.2 (August 1997) (visited August 4, 1998) <http://206.29.48.66/epalib/incent.nsf/$about > (hereinafter "ELI Report"). While the uniform national limits may be set at a level to protect health or the environment, they are usually set at a level that can be achieved through the use of a particular technology. See PERCIVAL, supra at 151-154.

2. The cost of pollution abatement and control rose from $64 billion in 1973 to over $121 billion in 1994. See GENERAL ACCOUNTING OFFICE, ENVIRONMENTAL PROTECTION: CHALLENGES FACING EPA'S EFFORTS TO REINVENT ENVIRONMENTAL REGULATION, ch. 1 (GAO/RCED-97-155) (July 2, 1997) (hereinafter "GAO Reinvention Report").

3. See Barton H. Thompson Jr., The Search for Regulatory Alternatives, 15 STAN. ENVTL.. L.J. 8,9 (1996). The Clean Water Act defines a "point source" to include "any discernible, confined and discrete conveyance ... from which pollutants are or may be discharged." 33 U.S.C. § 1362(14) (1994). Water pollution, such as runoff from construction activities, that does not come from "point sources," is called "nonpoint source" pollution. See PERCIVAL, supra note 1, at 880.

4. See, e.g. Ackerman & Stewart, supra note 1; Howard Latin, Ideal versus Real Regulatory Efficiency: Implementation of Uniform Standards and "Fine-Tuning" Regulatory Reforms, 37 STAN. L. REV. 1267 (1985).

5. See, Ackerman & Stewart, supra note 1, at 1335, 1341; Latin, supra note 4, at 1267-68. "[T]he cost of controlling a given pollutant may vary by a factor of 100 or more, depending on the age and location of the plants involved and the control technologies available." Robert N. Stavins, Harnessing the Marketplace, May-June 1992, at 21. However, as Ackerman and Stewart note, under the command and control approach, "polluter A is obliged to cut back his own wastes even if it is cheaper for him to pay his neighbor B to undertake the extra cleanup involved." See Ackerman & Stewart, supra note 1, at 1341.

6. See Ackerman & Stewart, supra note 1, at 1335. Conversely, though, when uniform national limits are based on technology, all polluters in a particular region may comply with the uniform limits, yet discharge pollution at a level that harms human health or the environment.

7. See Ackerman & Stewart, supra note 1, at 1336-37. See also E. Donald Elliott, Legal Regulation and Reform: Quality Environmental TQM: Anatomy of a Pollution Control Program that Works, 92 MICH. L. REV. 1840, 1846-47 (1994).

8. See Ackerman & Stewart, supra note 1, at 1335-36.

9. Id. at 1336, 1341; See also Stavins, supra note 5, at 22; ELI Report, supra note 1, § 1.2.

10. See, ELI Report, supra note 1, §§ 2.1.1, 3.3; Stavins, supra note 5, at 21. See also NATIONAL PARTNERSHIP FOR REINVENTING GOVERNMENT, FROM RED TAPE TO RESULTS: CREATING A GOVERNMENT THAT WORKS BETTER AND COSTS LESS (Sept. 7, 1993) (visited August 4, 1998) <http://www.npr.gov/library/nprrpt/annrpt/redtpe93/index.html >

11. See President William J. Clinton, Reinventing Environmental Regulation, §5 (March 16, 1995) (visited August 6, 1998) <http://www.epa.gov/reinvent/notebook/clinton.htm >

12. See ELI Report, supra note 1, ch.12. EPA reviewed many of the early market-based experiments in a 1992 report. See ENVIRONMENTAL PROTECTION AGENCY, THE UNITED STATES EXPERIENCE WITH ECONOMIC INCENTIVES TO CONTROL ENVIRONMENTAL POLLUTION (July 1992).

13. See Stavins, supra note 5, at 21-22; Ackerman & Stewart, supra note 1, at 1335; ELI report, supra note 1, § 3.3. Market-based approaches "can save anywhere from 10% - 90% of the cost of controlling pollution under traditional command and control approaches." See ELI report, supra note 1, § 1.2.

14. See Stavins, supra note 5, at 22; ELI Report, supra note 1, § 3.5.

15. See Ackerman & Stewart, supra note 1, at 1336-37.

16. See Stavins, supra note 5, at 22; ELI report, supra note 1, ch. 3.

17. See infra notes 154-177, and accompanying text.

18. See Ackerman & Stewart, supra note 1, at 1341. Section II of this article describes specific trading programs in greater detail.

19. Id. at 1341-42.

20. Id. at 1343.

21. Id. at 1344, 1346.

22. Id. at 1349. The government can reduce aggregate pollution levels by limiting the overall amount of pollution "rights" that are available to polluters, and by reducing that amount over time. Id. See also Stavins, supra note 5, at 23.

23. While traditional taxes on income, capital formation, payrolls, sales and property generally discourage socially productive activities, pollution taxes discourage environmentally damaging activities. See Richard L. Ottinger & William B. Moore, The Case for State Pollution Taxes, 12 PACE ENVTL. L. REV. 103, 105 (1994); Amy Christian, Designing a Carbon Tax: The Introduction of the Carbon-Burned Tax, 10 UCLA J. ENVTL. L. & POL'Y 221, 226 (1992). Consequently, many legal theorists are advocating a reduction in taxes, like the income tax, that discourage socially desirable activities, coupled with an increase in taxes, like pollution taxes, that discourage socially undesirable activities. See, Ottinger & Moore, supra at 104; Christian, supra at 226-227. In order to protect human health and the environment, pollution taxes should be set at a level that is equal to the harm that the pollution discharges cause to health and the environment. See FRANK S. ARNOLD, ENVIRONMENTAL LAW INSTITUTE, WHY POLICY MAKERS DON'T USE ENVIRONMENTAL TAXES 1 (1994) (visited August 6, 1998) < http://206.29.48.66/epa/eermfile.nsf/vwAN/EE-0312-1.pdf/$File/EE-0312-1.pdf> (hereinafter ELI Tax Report).

24. See ELI Tax Report, supra note 23, at 1.

25. See Ottinger & Moore, supra note 23, at 105; Roger C. Dower & Robert Repetto, Green Fees and the Need for Fiscal Restructuring: Opportunities and Challenges, 12 PACE ENVTL. L. REV. 161 (1994); Stavins, supra note 5, at 22; ELI Tax Report, supra note 23, at 1.

26. See Ottinger & Moore, supra note 23, at 105.

27. See ELI Tax Report, supra note 23, at 1; Stavins, supra note 5, at 22.

28. The level of environmental protection that a tax will provide will vary depending upon the rate of the tax. If the tax is set too low, polluters will not reduce their pollution discharges, or may actually increase their discharges, and will pay the tax as a cost of doing business. ELI Tax Report, supra note 23, at 6-8.

29. See ELI Report, supra note 3, § 3.3.2.

30. See ELI Report, supra note 1, § 3.3.4.

31. Id.

32. Id. Several states, Canadian provinces, and a number of European nations have enacted "bottle bills" to reduce improper disposal of beverage containers. See Stavins, supra note 5, at 24.

33. See ELI Report, supra note 1, § 5.1.

34. See infra notes 154-177, and accompanying text.

35. See ELI Report, supra note 1, ch.12. A recent report by the Environmental Law Institute identified 19 studies that compared air pollution control costs under traditional command and control regulation to various market-based reforms. Id., table 3-1. All of the studies concluded that market-based approaches were less costly than command and control regulation. Id. In one study, command and control regulation was found to be 22 times more costly than a market-based alternative. Id.
 

The ELI report also identified 9 studies that compared the costs of command and control regulation for water pollution to market-based reforms. See ELI Report, supra note 1, table 3-2. All of those studies concluded that the "market-based" approaches were less costly, although the cost differences were less pronounced than in the air pollution studies. Id.

36. See ELI Report, supra note 1, at Exec. summ., iv. While market-based alternatives are generally designed to provide environmental protection that is similar to command and control regulation, few studies have examined whether they have achieved that level of protection in practice. Id., ch.12.

37. Despite the rosy predictions, market-based reforms have not been implemented in the manner advocated by economists, participation in market-based reforms has been marginal, and the reforms are not generating the substantial cost savings that economists have predicted. See ELI Report, supra note 1, §§ 3.4, 12. There are many reasons why market-based reforms have not performed as predicted. In many cases, pollution taxes and fees have been designed merely to raise revenue, and have been set too low to provide incentives to reduce pollution. Id. at exec. summ - iv. Participation in trading programs has been inhibited by complicated regulations for those programs. Id. In addition, due to regulatory and legal requirements, opportunities for trading pollution rights are more limited in practice than economists propose in theory. See ELI Report, supra note 1, § 3.4. Consequently, there is little empirical evidence that emissions trading has stimulated environmental performance that is superior to traditional command and control regulation. See David M. Driesen, Is Emissions Trading an Economic Incentive Program?: Replacing the Command and Control / Economic Incentive Dichotomy, 55 WASH. & LEE L. REV. 289, 313 (1998).

38. "Environmental injustice" is the antithesis of "environmental justice," which EPA defines as "the fair treatment and meaningful involvement of all people, regardless of race, color, national origin, or income, with respect to the development, implementation, and enforcement of environmental laws, regulations, programs, and policies. Fair treatment means that no racial, ethnic, or socio-economic group should bear a disproportionate share of the negative environmental consequences resulting from industrial, municipal, and commercial operations, or from the execution of federal, state, local, or tribal programs and policies." See ENVIRONMENTAL PROTECTION AGENCY, Environmental Justice Through Pollution Prevention Grant Program (1998) (visited August 6, 1998) < http://www.epa.gov/opptintr/ejp2/intro-ix.htm >

39. Studies indicate that hazardous waste landfills and treatment facilities, and industries that emit the greatest amounts of toxic chemicals, have been sited predominantly in minority or low-income communities. See, Paul Mohai, Methodological Issues: the Demographics of Dumping Revisited: Examining the Impact of Alternate Methodologies in Environmental Justice Research, 14 Va. Envt'l. L. J. 615 (1995); Benjamin A. Goldman & Laura Fitton, TOXIC WASTES AND RACE REVISITED: AN UPDATE OF THE 1987 REPORT ON THE RACIAL AND SOCIOECONOMIC CHARACTERISTICS OF COMMUNITIES WITH HAZARDOUS WASTE SITES 14-15 (1994); UNITED CHURCH OF CHRIST COMMISSION FOR RACIAL JUSTICE, TOXIC WASTES AND RACE IN THE UNITED STATES (1987); U.S. GENERAL ACCOUNTING OFFICE, SITING OF HAZARDOUS WASTE LANDFILLS AND THEIR CORRELATION WITH RACIAL AND ECONOMIC STATUS OF SURROUNDING COMMUNITIES (1983). But see David Mastio, EPA Ignored Race Report, DET. NEWS, May 28, 1998, at A1 (citing a study that concluded that (a) while 12% of the country's residents are African American, only 8% of the residents that live near Superfund sites in EPA Region VI are African American; (b) 75% of the residents that live near Region IV Superfund sites are white; and (c) the average income of residents living within a mile of Superfund sites nationwide is greater than the average national income.)
 

Studies also suggest that the Federal government is bringing enforcement actions under environmental laws, and making cleanup decisions under Superfund, in a discriminatory manner. See Marianne Lavelle & Marcia Coyle, Unequal Protection: The Racial Divide in Environmental Law, Nat'l. L.J., Sept. 21, 1992, at S1, S1-12; Rae Zimmerman, Social Equity and Environmental Risk, 13 RISK ANALYSIS 6, 20 (Dec. 1, 1993); Unequal Protection: Environmental Justice and Communities of Color (Robert D. Bullard ed., 1994).
 

Air quality in minority and low-income communities is worse than in other communities. See Richard J. Lazarus, Pursuing Environmental Justice: The Distributional Effects of Environmental Protection, 87 NW. U. L. REV. 787, 797 (1993); See also Hearings on Environmental Justice Before the Subcomm. On Civil and Constitutional Rights, 103d Cong., 1st Sess. (March 3-4, 1993) (statement of Paul Mohai); D.R. Wernette & L.A. Nieves, Breathing Polluted Air, EPA JOURNAL, Mar./Apr. 1992, at 16.
 

In addition, the Federal government establishes regulations under a variety of environmental laws to protect persons from exposure to hazardous levels of toxic substances based on assumptions that may not protect various ethnic or racial communities. See Robert R. Kuehn, The Environmental Justice Implications of Quantitative Risk Assessment, 1996 U. ILL. L. REV. 103 (1996).

40. See RICHARD A. POSNER, ECONOMIC ANALYSIS OF LAW , ch.1 (4th ed. 1992), reprinted in KENNETH DAU-SCHMIDT, THOMAS S. ULEN, LAW AND ECONOMICS ANTHOLOGY 1,8 (1998).

41. Judge Posner relates the following story to explain the economist's definition of "value": "Suppose that pituitary extract is in very scarce supply relative to the demand and is therefore very expensive. A poor family has a child who will be a dwarf if he does not get some of the extract, but the family cannot afford the price ... A rich family has a child who will grow to normal height, but the extract will add a few inches more, and his parents decide to buy it for him. In the sense of value used in this book, the pituitary extract is more valuable to the rich than to the poor family, because value is measured by willingness to pay." See POSNER, supra note 40, at 9. While Posner suggests that the rich family is more "willing to pay" for the extract than the poor family, it seems that the rich family is more "able to pay" than the poor family, rather than more "willing to pay." Posner's definition of willingness to pay, therefore, seems to incorporate ability to pay.

42. Professor Gerald Torres notes that "[t]he essence of the market suggests that poor people will be disadvantaged in relation to relatively better off people in the acquisition of goods. Environmental quality is merely a good that also is market sensitive. Thus, it should not be surprising that poor people, and poor black people as a subset of that economic class, suffer greater environmental burdens than do better off people. Poor people merely choose, and rationally so, to spend their scarce resources on other goods." See Gerald Torres, The Future of Environmental Regulation: Environmental Justice: The Legal Meaning of a Social Movement, 15 J.L. & COM. 597, 607-608 (1996).

43. See James B. White, Economics and Law: Two Cultures in Tension, 54 TENN. L. REV. 161 (1987), reprinted in KENNETH G. DAU-SCHMIDT, THOMAS S. ULEN, LAW AND ECONOMICS ANTHOLOGY, 49, 57-58 (1998). White further notes that "[t]he modern celebration of the market as the central social institution ... threatens to destroy the single greatest achievement of Western political culture: the discovery that a community can govern itself through a rule of law that attempts to create a fundamental moral and political equality among human beings. The great phrase in the Declaration of Independence - 'all men are created equal' - is partly a theological statement about the conditions under which we are created and partly a political statement about the obligation of the government to acknowledge, indeed to create or recreate, that equality. The ideology of the market, if it prevailed in its desire to convert all institutions into markets, would destroy this set of political relations and create another in its stead, based upon the dollar." Id. at 58.

44. See POSNER, supra note 40, at 10-11, 17.

45. Id. at 10.

46. Id. at 17-20.

47. As Professor Zygmunt Plater has noted, "Environmental law evolved as a response to the dark side of those dynamic market forces that have built the world's largest economy and have made modern life so materially enriched and diverse. Human nature as reflected in the marketplace, however, inherently tends to ignore and pass on social costs to the environment and to others." See Zygmunt J.B. Plater, Environmental Law as a Mirror of the Future: Civic Values Confronting Market Force Dynamics in a Time of Counter-revolution, 23 B.C. ENVTL. AFF. L. REV. 733, 737 (1996).

48. Professor Plater notes that "environmental law has come to incorporate a set of principles representing and accounting for civic values that extend far beyond the realm of science and current events. Perhaps only in environmental law has the modern legal system directly incorporated issues of long-term societal survival into its operative norms and doctrinal provisions. ... By thus embodying civic values, environmental law transcends ecology and raises issues of social governance. Scratch an environmental law argument and you are likely to find an underlying question of democracy --how individuals, corporations, and communities are to balance their drives and needs, each day and over future years and generations." Id. at 737.

49. If the free market adequately considered the social concerns that environmental laws are designed to protect, there would be no need for environmental laws. However, "[t]he human logic of the marketplace lacks a gene for altruism. Without external constraints, social and political mechanisms driven by individualism are dominated by short-term profit expediencies, to the detriment of many short and long-term societal values. They do not incorporate principles that protect the community when the interests of the community and the individual enterprise diverge." Id. at 763. Accordingly, economic considerations should not be the sole factor that is weighed in future environmental initiatives.

50. See POSNER, supra note 40, at 10.

51. Id.

52. "When an economist says that ... control of pollution or some other policy or state of the world is inefficient, nine times out of ten he means Kaldor-Hicks efficient." Id.

53. Id.

54. The seller may have changed its production process or otherwise reduced its pollution output to create its pollution "rights".

55. See, ELI Report, supra note 1, § 3.3.3..

56. The pollution trade may also have benefits for third parties. For instance, by purchasing pollution rights, a company may be able to continue to operate in a community, providing jobs and revenue to the community that would have been lost if the company were not able to buy the pollution rights. In addition, communities near the company that sold the pollution rights may receive benefits because the seller may have reduced its pollution emissions to create the pollution "rights" that it sold in the trade. These benefits must be weighed with the harms to determine whether the trade is "efficient."

57. In order to calculate the harms and benefits of the trade, one must focus on the harms and benefits caused by the 100 pounds of pollution authorized by the trade.

58. See, e.g., David M. Driesen, The Societal Cost of Environmental Regulation: Beyond Administrative Cost-Benefit Analysis, 24 ECOLOGY L.Q. 545, 558 (1997) (discussing quantification of health impacts for cost-benefit analysis); Robert R. Kuehn, supra note 39, at 116-139 (1996) (discussing quantification of health impacts for risk assessment).

59. See Dana Clark, David Downes, What Price Biodiversity? Economic Incentives and Biodiversity Conservation in the United States, 11 J. ENVTL. L. & LITIG. 9, 19 (1996). Clark and Downes assert that "[t]he current national income accounting system provides an example of a perverse economic incentive ... Rather than recognizing the Exxon Valdez spill for what it was, namely a decline in the value of natural resources in the area, it is recorded as an increase in the national income. The spill boosted GNP! All the clean-up expenditures served to increase national income, but no account was taken of the consequent depreciation of the natural environment." Id. at 20.

60. See Stavins, supra note 5, at 24.

61. See ELI Report, supra note 1, §3.3.3.

62. Id., ch. 6.

63. See 51 Fed. Reg. 43,814 (1986).

64. The policy refers to "major stationary sources," which are defined in the Clean Air Act as sources which have the potential to emit 100 tons per year of any pollutant. 42 U.S.C. § 7602(j) (1994).

65. EPA sets national ambient air pollution limits, called national ambient air quality standards, for "criteria" pollutants. Id. § 7409. States are divided into geographic regions, called air quality control regions, for purposes of regulation under the Clean Air Act. Id. § 7407. If the air quality in an air quality control region does not meet the national ambient air quality standard for a particular pollutant, the region is said to be in "nonattainment" for that pollutant.

66. Id. § 7503.

67. Under the policy, a pollution reduction can be certified as an "emission reduction credit" only if the reduction is greater than any reduction required by law, enforceable, permanent and quantifiable. 51 Fed. Reg. at 43,831.

68. Id. The Clean Air Act also allows companies to use offsets when the companies plan to build new major sources of air pollution or make major modifications to major sources in air quality control regions that meet the national ambient air quality standards. 42 U.S.C. § 7475 (1994). While the non-attainment provisions of the Clean Air Act prohibit increases in pollution in dirty air quality control regions, the Act allows a limited increase in the amount of pollution in clean air quality control regions. Id. If a company plans to build a new major source of air pollution or to make a major modification of a major source in a clean air quality control region, it must ensure that the increased pollution from the source will not exceed the limits allowed for the region. Id. If the pollution will exceed those limits, companies can only build the sources if they obtain offsets equal to the amount of increased pollution. See 51 Fed. Reg. at 43, 831.

69. Nationally, only 10% of "offset" trades occur between companies. See ELI Report, supra note 1, § 6.1.1.1. Usually, companies generate emission reduction credits by closing or making changes to an existing source, and companies use those credits to "offset" the pollution from their new source. Id. Offset trades between companies have been frustrated by regulatory limits on trades and the transaction costs of negotiating a trade, among other factors. Id. § 6.1.1.5.

70. A bubble can include multiple emission points within a single facility, multiple facilities owned by the same company, or multiple facilities owned by different companies, as long as all of the facilities are within the same air quality control region. See ELI Report, supra note 1, §6.1.1.2. It is estimated that bubbles have saved businesses more than $435 million in pollution control costs. Id.

71. See 51 Fed. Reg. at 43,830. Netting is used more often than offsets or bubbles. See ELI Report, supra note 1, §6.1.1.4. Between 5,000 and 12,000 air pollution sources have used netting. Id. Since netting allows a small increase in pollution over the limits that would exist without netting, this "reform" can have adverse effects on the environment. Id. Through netting, companies save money by (a) avoiding more stringent pollution control costs that would apply to the source if netting were not allowed; (b) avoiding the costs of permit review and approval; and (c) avoiding construction delays that could result from the permitting process. Id.

72. 42 U.S.C. §§ 7651 - 7651o (1994).

73. See MARK SQUILLACE, ENVIRONMENTAL LAW VOLUME THREE: AIR POLLUTION 301 (2d. ed.1992).

74. Id.

75. 42 U.S.C. § 7651b(a)(1) (1994).

76. See ELI Report, supra note 1, §6.1.7. By early 1997, utilities had traded more than 7.2 million allowances and purchased over 300,000 allowances at EPA auctions. Id.

77. 42 U.S.C. § 7651i (1994). EPA issued final regulations to implement the opt-in program in 1995. See 60 Fed Reg. 17100 (1995).

78. See U.S. EPA, 1995 Compliance Results: Acid Rain Program, 430-R-96-012, July 1996. In the first year of the program, utilities reduced sulfur dioxide emissions by 5.6 million tons, although they were only required to reduce emissions by 2.2 million tons. See Utilities Double Required SO2 Reductions; EPA Allowance Auction Generates $18 Million, 26 Env't Rep. (BNA) 2249 (March 29, 1996).

79. EPA estimates that compliance with the sulfur dioxide emissions trading program costs about $1.2 billion annually for Phase I, and will cost $2.2 billion annually for Phase II, while a command and control approach would cost between $4.5 to 6 billion annually. See ELI Report, supra note 1, §6.1.7. In addition, Resources for the Future, a policy think-tank, recently published a report that concluded that the benefits of the sulfur dioxide trading program, which include reductions in illnesses and premature death, reduced impact on lakes, streams and other aquatic environments, and improved visibility, will be 13 times greater than the costs of the program by 2010. See Benefits of EPA's Acid Rain Program Far Exceed Its Costs, Researchers Find, 28 Env't Rep. (BNA) 888 (Sept. 19, 1997). While Congress focused on environmental benefits of sulfur dioxide emissions reductions when it created the trading program, recent studies have demonstrated that the health benefits of sulfur dioxide emission reduction dwarf all environmental benefits. See ELI Report, supra note 1, §6.1.7.

80. In order to phase out consumption (production plus imports, minus exports) of certain chlorofluorocarbons (CFCs) and halons to comply with terms of the Montreal Protocol on Substances that Deplete the Ozone Layer, EPA distributed "allowances" to companies that produced or imported CFCs and halons, which the companies could trade among themselves. See 53 Fed. Reg. 30,566 (1988). Congress capped the total number of allowances that EPA distributed, in order to gradually phase out consumption, 42 U.S.C. § 7671b (1994), and imposed an excise tax on CFC production to prevent windfall profits. 26 U.S.C. §§ 4681, 4682 (1994).
 

The alowance trading program cost businesses about $2.4 million, as opposed to the estimated $300 million cost of a command and control approach. See ELI Report, supra note 1, §6.1.8.

81. In order to reduce the amount of lead in the ambient air, EPA reduced the limit on the amount of lead in gasoline to an average level of 1.1 gm/gallon by November 1, 1982, 0.5 gm/gallon by July 1, 1985 and 0.1 gm/gallon by January 1, 1986. See ELI Report, supra note 1, §6.1.9. EPA allowed refineries to create lead credits, which could be allocated to other refineries for purposes of determining whether the refineries were complying with the lead limits. Id. For instance, if Refiner A produced 200 million gallons of gasoline in 1983 with an average lead content of 0.8 gm/gallon (when the limit was 1.1 gm/gallon), the refiner could earn 60 million grams of lead credits (0.3 gm/gallon * 200 million gallons), which it could sell to Refiner B, who may have produced 200 million gallons of gasoline with an average lead content of 1.4 gm/gallon. Id. Refiners could bank credits for use until the end of 1987. Id. Almost 60% of refiners participated in trading and 90% participated in banking by the end of the program. Id. EPA phased out the use of lead in gasoline much more quickly through trading than would have been possible under a pure command and control approach. Id.

82. Ozone levels in the Los Angeles area are often twice as high as the national ambient air quality standards. See ELI Report, supra note 1, § 6.1.2. Initially, regulators also proposed to include emissions of certain volatile organic compounds (VOCs) under the trading program. Id. Heavy opposition, coupled with various technical problems, prevented regulators from including VOCs in the