Scott Pruitt is the new Chief of the EPA. In this piece, he is quoted as saying that his agency will deliver “regulatory certainty”. How should we interpret this goal? As a fan of Prescott's “rules over discretion”, I full understand the importance of sending clear signals to forward looking investors.
I believe that Mr. Pruitt is worried about the following dynamic. The U.S Congress passes a vague law requiring “Clean Air” and “Clean Water” for every American. This vague law empowers an unelected regulatory body (the EPA) to implement new rules. The bureaucracy in the EPA responds by “over-reaching” and regulating many features of day to day life. This attempt to engage in regulations until the marginal benefits equal zero (while ignoring the extra costs of each extra piece of this regulation) would mean that our regulators impose “too much” regulation.
To an economist, the solution here would be to require a kosher academic peer reviewed cost/benefit test before specific regulation is enacted.
If businesses anticipate that they will face credible fines for polluting, then they will innovate to economize on their pollution.
While I appreciate that Mr. Pruitt wants to protect U.S firms from “excessive” regulatory exposure, I disagree on a key point. A key piece of environmental science is learning about new emerging risks. As public health experts learn (for example we have learned that Pm2.5 is more dangerous than PM10 or TSP particulates), we need to update the rules to reflect this new knowledge about dangers. Mr. Pruitt's “regulatory certainty” would appear to rule this out because the government would commit to a set of fines and then never change them even as it learns about new risks.
Slightly switching topics, it will interest me if Mr. Pruitt engages in spatial differential regulation. Will he allow highly populated, rich Manhattan to have more stringent environmental regulations than poor rural, Alabama? If this second area seeks to attract dirty factories (because they bring jobs) to the area, will Mr. Pruitt and Trump allow this? Will progressives celebrate such income growth or will they complain that the people in Alabama will regret their “Faustian deal”?
To wrap up this post, regulatory certainty is a good thing! The issue of moral hazard that plagues many parts of modern government would vanish if government could commit to following pre-specified rules. Each member of Congress should read and sign (to acknowledge that they have read it and understood most of it) Prescott's Nobel Prize lecture.