The knowledge problem is pervasive in environmental regulation, but could be solved by markets

The people affected by an environmental issue are usually in the best position to know how significant the issue is and have an incentive to find a reasonable means of resolving it. One of the primary benefits of a shift to free market environmentalism is that it would empower people to reveal this information, through compromise and the price signal.

Without markets and prices, how do regulators obtain this info and use it to make environmental decisions? Unfortunately, this knowledge is often beyond their grasp.

Federal and state laws provides for notice and comment before new regulations can be issued so that, in theory, regulators can obtain this knowledge. As I discussed in a recent law review article, California’s Administrative Procedure Act, which is similar to—although slightly broader than—the federal version, has the explicit purpose of educating regulators. As the California Supreme Court put it:

The Legislature wisely perceived that the party subject to regulation is often in the best position, and has the greatest incentive, to inform the agency about possible unintended consequences of a proposed regulation. Moreover public participation in the regulatory process directs the attention of agency policymakers to the public they serve, thus providing some security against bureaucratic tyranny.

That’s the theory. What’s the reality?

The public comment process is usually overwhelmed by unhelpful noise. E&E News‘ Michael Doyle reports on the derailment of the public comment process for a proposed U.S. Fish and Wildlife Service rule regarding environmental mitigation.

The Fish and Wildlife Service wanted a well-reasoned discussion of environmental mitigation. What it got was the Tower of Babel, in a meandering but illustrative comment period that ends tomorrow.

Comments poured in claiming that climate change is a fraud or accusing the federal government of giving away federal land. The problem?

None of that directly involves Fish and Wildlife’s mitigation policy, the putative and potentially high-stakes subject of the public comment period . . . That’s the way it often goes, though, with public comment periods that can become stuffed with petitions, form letters and tangents.

The public comment process isn’t supposed to be an open message board for the airing of conspiracies, off-topic political rants, and spurious, pseudo-scientific claims. Nor is it supposed to be the target of form-letter campaigns, which are extremely common (and useful fundraising tool for activist groups).

Many submissions are informative, of course. And they command the attention of bureaucrats. But the noise still has an impact, because the administrative process—far from the rule by apolitical experts envisioned in textbooks—is inherently politicized. Activists who support an agency’s decision, even if unpopular, will emphasize that it was science-based, rather than political. But when the tables turn, the same activists will decry administrative decisions they dislike for ignoring the public will. And, of course, regulatory decisions are made by political appointees who often aspire for higher political office.

To further politicize the process, many organizations will review public comment submissions and report that some surprisingly high percentage agreed with the organizations point of view (usually because the group sponsored a form-letter campaign). With so many rambling and off-topic comments, I imagine this process must be similar to Florida elections officials counting “hanging chads” and stray ballot markings after the 2000 election.

The poor quality of comments should not surprise because the administrative state faces a significant incentive problem. Bureaucrats face the knowledge problem identified by economist Friedrich Hayek—decisions depend on effects on many disperse people, whose values cannot easily be measured. And few can meaningfully influence the administrative process, because government regulation is too pervasive and complicated for the average person to weigh in with detail and expertise. And those who can meaningfully participate have an incentive to exaggerate their interests, because they know the decision will be made politically. Thus, whenever a regulation pits the interests of environmentalists against industry, the former will claim that the regulation is necessary to avoid environmental doom and the latter will insist that the regulation will lead to bankruptcy and widespread financial ruin. Although both could be true in theory, they never are.

Markets, however, can dispense with this hyperbole. It’s easy enough to say you’d pay any price for something, when you face no prospect of having to put your money where your mouth is. But in a real market transaction, you have to grapple with trade offs. When markets reflect environmental values—either because environmentalists will pay for environmental benefits or industry must pay for environmental damage—the price reveals how significant the environmental impact is and the cost of avoiding it. The price enables disparate interests to make tradeoffs, encouraging conservation where, on the margin, environmental values exceeds commercial values.

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