Competition among states is the driving force behind environmental policy innovation

Many environmental problems are extremely complex and involve solutions that require significant tradeoffs. For that reason, the state-level experimentation that our Constitution’s system of federalism protects is as essential for environmental policy as anywhere else. By pitting states against each other in competition for mobile citizens and businesses, federalism encourages states to innovate to solve difficult public policy problems, while also minimizing burdens.

connecticut_state_capitol2c_february_242c_2008Unfortunately, states are increasingly attacking that system by extending their environmental regulations beyond their borders.  I’ve just filed an amicus brief for PLF challenging a Connecticut law that finances a local recycling program by charging television manufacturers a fee based on their nationwide sales. In the brief, I argue that this is a naked attempt to shift the costs of Connecticut’s program onto consumers in other state, to whom Connecticut politicians are not accountable.

Connecticut is not alone in attempting to spread its regulatory burdens beyond its borders. Others have adopted regulations to lower greenhouse gas emissions but, not content to only regulate their own emissions, have applied these regulations to goods produced elsewhere. Minnesota, for instance, imposed a limit on emissions from power plants that applied to any plants connected to the grid that services the state, which includes about a third of the country.

These laws undermine the competition and experimentation upon which federalism depends. If you are a state legislator in Texas and you know that the businesses in your state are already having to comply with environmental regulations in California and pay for a different environmental program in New York, how likely are you to adopt a different approach to environmental regulation, when you know it will add additional costs to these businesses without lowering their burdens from other states? In that situation, you’re more likely to do nothing or just follow the lead of the other states, since your businesses are already being forced to comply with those regulations anyway. You have no incentive to develop completely different, novel solutions or to find ways to reduce costs.

Extraterritorial taxes and fees also reduce political accountability, by allowing states to concentrate benefits within their borders while dispersing costs beyond them. If a state’s voters like a policy, they should be willing to pay for it. But there’s no end to the lavish goodies voters might support if they know that the costs will be borne by others, to whom state politicians are not accountable. This undermines competitive federalism’s restraining influence, by thwarting states’ abilities to compete on the cost side of the cost-benefit ledger.

Its unfortunate, although understandable, that states would resist this competition. It’s difficult to solve environmental problems, especially while reining in costs. But we all benefit from maintaining this system. If the pressure lets up, states will settle for existing solutions, no matter the cost. Just as competition leads to innovation in the economy, and crony capitalism leads to sluggishness, competition among states is the driving force behind environmental policy innovation.

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