The Centre for the Management of Environmental Resources

Working Papers R & D CMER The Centre for the Management of Environmental Resources ENVIRONMENTAL PROTECTION IN THE INFORMATION AGE by D. ESTY* 2001/87/EPS/CMER This working paper was published in the context of INSEAD’s Centre for the Management of Environmental Resources, an R&D partnership sponsored by Ciba-Geigy, Danfoss, Otto Group and Royal Dutch/Shell and Sandoz AG. * Visiting Professor of Economic and Political Sciences at INSEAD, Boulevard de Constance, 77305 Fontainebleau Cedex, France. A working paper in the INSEAD Working Paper Series is intended as a means whereby a faculty researcher's thoughts and findings may be communicated to interested readers. The paper should be considered preliminary in nature and may require revision. Printed at INSEAD, Fontainebleau, France. 1 ENVIRONMENTAL PROTECTION IN THE INFORMATION AGE Daniel C. Esty* Yale Law School P.O. Box 208215 tel: (203) 432-1602/6256 fax: (203) 432-4871/3817 Draft 1 June 2001 *Yale Law School and Yale School of Forestry and Environmental Studies; former Deputy Chief of Staff and Deputy Assistant Administrator for Policy at the US Environmental Protection Agency. Thanks to Farrin Anello, Katy Fischer, Brian Fletcher, Phil Fortino, and Meryl Raymar for research assistance. 1 Introduction In 1611, Thomas Benton built a pig sty behind his house in Norfolk, England. His neighbor, William Aldred complained about the smell, and when Benton refused to move the pigs, Aldred went to court. Rejecting Benton’s claim that “one ought not to have so delicate a nose that he cannot bear the smell of hogs,” and observing that the air had been “corrupted” by the stench of the pigs, the court ruled in Aldred’s favor and declared Benton’s pig sty to be a nuisance.1 Over the next century, the environmental rights identified in Aldred’s case – making spillovers of smells, smoke, or other pollution harms from one property owner on to another, even without a physical trespass, actionable under tort law – became the norm. In a 1702 case finding the failure to rebuild a wall separating a privy from the neighbor’s house a nuisance, Lord Holt spelled out the “ no externalities rule” in plain English: “every man must so use his own as not to damnify another.”2 In the intervening three centuries, as pollution control efforts expanded beyond the obvious harms of pig stys or broken-down privy walls, our strategies for protecting environmental rights have evolved considerably. Each refinement in strategy helped to resolve weaknesses in prior approaches to environmental protection, especially information shortcomings. But the essential goals of efficiency (internalizing externalities) and justice (making victims whole) have remained the same. The next step now looms ahead: a further restructuring of environmental decisionmaking and action based on the availability of Information Age tools, knowledge, and approaches. As data and information become ever more plentiful and dramatically less costly3, both the environmental problem 1Aldred’s Case, 77 Eng. Rep. 816 (1611). 2Tenant v. Goldwin, 92 Eng. Rep. 222 (1702). 3WILLIAM GATES, THE ROAD AHEAD (1995) (identifying breakthrough technologies); WILLIAM J. MITCHELL, E-TOPIA 13 (1999) (“[I]nformation has become dematerialized and disembodied; it is now whizzing round the world at warp speed, and in catex-crackling quantities, through computer networks.”); Ira S. Nathanson, Internet Infloglut and Invisible Data: Spamdexing Search Engines with Meta Tags, 12 HARV. J. L. & TECH. 43, 51 (1998) (describing the explosion of information accessible through free online search engines). 2 set and our response strategies will be reconfigured. In particular, a wide-ranging set of pollution tracking and taxing mechanisms creates the potential for more complete internalization of externalities with lower transaction costs and more appropriate compensation of victims. As I spell out below, computers, modern telecommunication devices, and related advances in sensors, statistical modeling, and other knowledge realms will increase our capacity to understand environmental threats and to manage regulatory complexity, allowing us to further decentralize, refine, and individually tailor environmental policies. In particular, the ability to delineate, defend and exchange environmental rights at low cost makes a more robust property rights regime possible. These same technical advances will also improve the efficacy of government-mandated pollution controls and permit a shift toward greater use of market mechanisms rather than command and control regulatory approaches. In addition, the advances of the Information Age may speed the process of norm diffusion and tighten the feedback loops that create a social context of environmental concern. Although the tenacity of the status quo and obstruction by interests who benefit from the current approach to environmental protection will conspire to create significant institutional obstacles to change, the pressures for systemic reform over time are great. And while the Digital Era may generate an economic boom that has “scale” effects (driving consumption and thus pollution up) and create new environmental challenges, an improved capacity to gather, sort, process, analyze, monitor, digest, and display data promises to enhance virtually all of the existing myriad of pollution control and natural resource management strategies. These changes will shift the optimal specificity of regulation and the mix of pollution control strategies that society deploys as the tradeoff among economic efficiency, administrative cost, justice, and other policy goals evolves. The core argument, advanced in the pages that follow, is that we stand on the verge of computer-led shift in the “Pareto frontier” for environmental protection with broad implications that have just begun to be considered. The pace and phase direction of this environmental revolution are hard to forecast, but the impact, I argue, will be profound over the coming decades. And the potential is already present today. Part I of this Article opens with a brief review of environmental protection theory. I outline the 3 core goals of environmental policy: (1) allocative efficiency through the internalization of externalities, (2) administrative efficiency through the adoption of least social cost strategies of intervention to correct externalities, and (3) making pollution victims whole, which I call the “justice condition.” I further explain how these goals interact to define a “policy possibility frontier.” Part II examines our existing models of environmental protection: (1) property rights utilizing tort and contract law, (2) command and control regulation, (3) economic-incentive-based regulation, (4) social context, and (5) the default option of doing nothing. I review the shortcomings that plague these approaches to pollution control, highlighting, in particular, the central role of information gaps and failures and thus the Information Age opportunities for progress. Part III expands the analysis of the opportunities for Information Age environmental gains, focusing in particular on the need to see the environmental challenge as more than a question of internalizing externalities. I argue that some pollution problems are better understood as “waste” or inefficiency based on ignorance or the use of unsophisticated technologies. But computer-driven technologies such as the Internet permit much faster identification of such mistakes and the dissemination of information on “best practices.” In other cases, environmental problems should be seen as a question of managing diversity in circumstances, tastes, and values. Information age technologies may, in such circumstances, allow a much greater degree of individually-tailored environmental choice as well as expanding and solidifying the “technical” foundations for personal environmental decisionmaking. For instance, expanded use of ecolabels and other sources of consumer information might position individual buyers to make food safety choices such as whether to eat products derived from genetically modified organisms (GMOs). Part IV examines how, both in theory and practice, the advances of the Information Age might be brought to bear in the environmental realm. I argue that breakthroughs in computers and communications technologies and the knowledge revolution they are spawning will change our understanding of the environmental problem set as well as our thinking about response strategies, both of which will drive, and ultimately be driven by, changing values toward environmental harms. As 4 these variables change, both iteratively and interactively, the environmental realm seems likely to be profoundly transformed. More plentiful and cheaper data and knowledge will enable both companies and consumers to overcome information-related market failures, thereby expanding the domain in which a property rights regime may function appropriately. Information Age breakthroughs also promise to facilitate improved regulation by reducing the spectrum of existing regulatory failures including technical and scientific shortcomings, administrative inefficiencies, structural (or jurisdictional) mismatches, and public choice distortions. Finally, low-cost access to environmental information will greatly enhance the capacity for environmental gains through a social context of “greener” markets and more sharply focused environmental pressures from “communities,” both geographic and issue-defined. Part V explores how the gains from a world of richer

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