Another example of why strong environmental regulations are needed
The chemical spill that fouled West Virginia’s water supply provides yet another example (as if any more were needed) showing why unregulated markets will underinvest in environmental protection.
The Wall Street Journal has a summary here (subscription required)
Freedom Industries Inc., the company connected to a chemical spill that tainted the water supply in West Virginia, on Friday filed for Chapter 11 bankruptcy protection.
A bankruptcy petition signed by the company’s president, Gary Southern, estimates Freedom’s debts at $10 million or less, but the cost of disaster is likely to run much higher.
Thousands of gallons of an allegedly toxic chemical called crude MCHM contaminated the water supply for hundreds of thousands of the state’s residents for days, spawning lawsuits from businesses and people affected by the disaster.
If the company is found liable for damages from the spill, bankruptcy protection prevents the owners from being held fully accountable for damages to others. The result is that society will end up paying for the costs, so profits have been privatized, and losses socialized. In addition, companies that behave responsibly and institute best practices will be penalized by higher costs relative to less responsible companies.
If there are regulations, then everyone in the marketplace has to pay the costs, so no one is disadvantaged. There can be no clearer argument for why government regulation of environmental damages is needed. Otherwise there will be a race to the bottom that results in society paying the price.
There are other important issues. Consider this sentence that occurs later in the WSJ story:
As the chemical isn’t regulated, there are “no published standards” for acceptable levels of concentration in water, according to Freedom.
According to Wired Science, the chemical involved in the spill was
one of 62,000 industrial compounds grandfathered in with passage of the 1976 Toxic Substances Control Act. Basically that meant that no further testing was required; the assumption was that these chemicals, which apparently hadn’t killed anyone yet, were unlikely to do so.
A recent New Yorker story also lays out more details about the lack of oversight, writing
It was, apparently, no one’s job to regularly monitor Freedom Industries’ tanks along the Elk, even though state officials knew that hazardous chemicals were sitting near the West Virginia American Water intake.
This points to fundamental problems with current US regulation of chemicals. First, many chemicals have been grandfathered, but we have no idea whether these chemicals are toxic or carcinogenic (because no one has an incentive to test them). Second, we assume that chemicals are safe unless proven otherwise, instead of testing any chemicals before we put them into widespread use. This assumption leads to greater costs (because manufacturers have to pull products from the shelves if found to be problematic, as they did for BPA in children’s products) but it also will lead to harm that may go undiscovered for years or decade, since the onus is on people with concerns to prove harm, instead of making the chemical companies show safety before putting chemicals on sale. Finally, the existing regulations on such chemicals are fragmented, incomplete, and often nonexistent, so substantial reforms are needed.
It’s time to change our fundamental assumptions about chemicals, so that all such materials must be tested before they put into products or used for industrial processes. It’s also time to work through that massive backlog of grandfathered chemicals and figure out which of them are safe and which aren’t, then follow up with appropriate regulations. And it’s time to make sure all toxic substances are regulated effectively, and that none fall through the cracks.
These conclusions imply that we’ll need government action to fix these environmental problems, and that the “government is the problem” crowd will need to be beaten back, yet again. As I wrote in Cold Cash, Cool Climate (as well as this blog post)
What we need is an honest discussion about what kind of government we want and what we want it to do for us. Sometimes we’ll want more government, like when we find lead in children’s toys, salmonella in peanut butter, poison in medicines, an unsustainable health care system, or fraudulent assets and a lack of transparency in the financial world. We know from experience that only government can fix those things. Sometimes we’ll want less government, like when old and conflicting regulations get in the way of starting innovative new companies. Only government can fix that too (although the private sector has some lessons to teach on that score). And sometimes we’ll want the same government, just delivered more efficiently (like the state of California has done with the Department of Motor Vehicles in recent years, the good results of which I’ve experienced firsthand).
When it comes to government, more is not better. Less is not better. Only better is better. And better is what we as a society should strive for.
It is strange that more than fifty years after Rachel Carson’s Silent Spring, we still haven’t fundamentally reformed how we treat chemicals we put in the environment or in our bodies. It’s long past time to fix that.
Addendum: What I’ve suggested above amounts to changing our expectations about property rights, which is a topic I explored in detail in Cold Cash, Cool Climate and in this blog post. Government defines property rights and those rights can (and should) evolve over time as the economy changes. There’s nothing radical about making such a change, and doing so in a sensible way would allow society to move towards a more sustainable society with minimal disruption to the economy. The end result would be a society where the costs of environmental damage are borne more completely by the creators of that damage, which is both efficient and just.
Addendum 2: Climate Progress gives more examples of how companies can use bankruptcy to avoid accountability for environmental damages.
