Environmental Law and Economics: Theory and Practice

398 Pages·2019·2.99 MB·English

by  Michael G. Faure, Roy A. Partain

environmental law and economics
InEnvironmentalLawandEconomics,MichaelG.FaureandRoyA.Partainprovidea
detailed overview of the law-and-economics methodology developed and employed by
environmental lawyers and policymakers. The authors demonstrate how this approach
can transcend political divisions in the context of international environmental law,
environmental criminal law, and the property rights approach to environmental law.
Private law solutions and public regulatory approaches are also explored, including
traditional command-and-control and market-based forms of regulation. The book not
only shows how the law-and-economics framework can be used to protect the environ-
ment,butalsotoexaminedeeperquestionsinvolvingenvironmentalfederalismandthe
effectiveness of environmental law in developing economies. In clear, digestible prose
thatdoesnotrequirereaderstopossessabackgroundinmicroeconomicsormathemat-
ics,theauthorsintroducethetheoryandpracticeofenvironmentallawandeconomics
thathavebeensocriticalinthecreationofrobustenvironmentalpolicy.
michaelg.faureisProfessorofComparativeLawandEconomicsatErasmusSchool
of Law and Professor of International and Comparative Environmental Law at Maas-
trichtUniversity.HeisalsoAcademicDirectoroftheMaastrichtEuropeanInstitutefor
TransnationalLegalResearch(METRO),theIusCommuneResearchSchool,andthe
EuropeanDoctorate inLaw andEconomics(EDLE) programme.He isan attorneyat
the Antwerp Bar and publishes in the areas of environmental criminal law, tort and
insurance,andeconomicanalysisofaccidentlaw.
roy a. partain is Chair and Professor of Commercial Law and Sustainability at the
University of Aberdeen, as well as director of the PhD in Law programme and several
LLMandLLBprograms.Hisresearchexploresthenexusbetweencommerciallawand
sustainabledevelopment,includingtheliabilityissuesarisingfromemergentandinnova-
tivetechnologies.HeisaMemberoftheStateBarofTexas.Hehasadvisedandworked
onresearchprojectsunderwrittenbyministriesandresearchinstitutionsinEastAsia.

Environmental Law and Economics
theory and practice
Michael G. Faure
Erasmus University School of Law and
Maastricht University Faculty of Law
Roy A. Partain
UniversityofAberdeen School ofLaw
UniversityPrintingHouse,Cambridgecb28bs,UnitedKingdom
OneLibertyPlaza,20thFloor,NewYork,ny10006,USA
477WilliamstownRoad,PortMelbourne,vic3207,Australia
314–321,3rdFloor,Plot3,SplendorForum,JasolaDistrictCentre,NewDelhi–110025,India
79AnsonRoad,#06–04/06,Singapore079906
CambridgeUniversityPressispartoftheUniversityofCambridge.
ItfurtherstheUniversity’smissionbydisseminatingknowledgeinthepursuitof
education,learning,andresearchatthehighestinternationallevelsofexcellence.
www.cambridge.org
Informationonthistitle:www.cambridge.org/9781108429481
doi:10.1017/9781108554916
©MichaelG.FaureandRoyA.Partain2019
Thispublicationisincopyright.Subjecttostatutoryexception
andtotheprovisionsofrelevantcollectivelicensingagreements,
noreproductionofanypartmaytakeplacewithoutthewritten
permissionofCambridgeUniversityPress.
Firstpublished2019
PrintedintheUnitedKingdombyTJInternationalLtd.PadstowCornwall
AcataloguerecordforthispublicationisavailablefromtheBritishLibrary.
isbn978-1-108-42948-1Hardback
isbn978-1-108-45429-2Paperback
CambridgeUniversityPresshasnoresponsibilityforthepersistenceoraccuracy
ofURLsforexternalorthird-partyinternetwebsitesreferredtointhispublication
anddoesnotguaranteethatanycontentonsuchwebsitesis,orwillremain,
accurateorappropriate.
Contents
Preface page xv
Acknowledgements xvii
Listof Abbreviations xix
1 Introduction 1
1.1 Why aBook on Environmental Law and Economics? 1
1.2 Readership 4
1.3 Methodology 5
1.4 Synopsis and Structure 8
2 Environmental Harm and Efficiency 10
2.1 PrinciplesofEnvironmentalLaw,fromanEconomicPerspective 11
2.2 Pollutionas an Externality 13
2.2.1 External Effects for Firms andStates 13
2.2.2 InternalisingtheExternalityasGoalofEnvironmentalLaw 15
2.2.3 EIAs and Internalising Externalities 16
2.3 The Coase Theorem 18
2.3.1 Reciprocal Nature ofHarm 18
2.3.2 Example ofConflicting CoaseanProperty Rights 20
2.3.3 The Coase Theorem:AFew Constraints 21
2.3.4 Practical Value ofthe Coase Theorem 23
2.3.5 Transboundary Applicationof the Coase Theorem 24
2.4 The Need for Legal and Policy Instruments 27
2.4.1 Determining Optimal Pollution Levels 27
2.4.2 Rules ofCivil Liability 29
2.4.3 Public Regulation:Command and Control 30
2.4.4 Market-Based Instruments 31
2.4.5 Suasive Mechanisms 32
v
vi Contents
2.4.6 Voluntary and Private Mechanisms 32
2.4.7 Smart Instrument Mixes 33
2.5 Summary andConclusion 34
3 Property Rights Approach to EnvironmentalLaw 37
3.1 Importanceof EstablishingProperty Rights 38
3.1.1 The ‘Tragedy ofthe Commons’ 38
3.1.2 Property Rights as aRemedy 40
3.2 Examples ofProperty RightsApproachesto Wildlife 43
3.2.1 Protection of Elephants 45
3.2.2 Effectivenessof CITES? 46
3.2.3 Protecting Rhinocerosvia Property Rights 47
3.2.4 LocalisedManagement 48
3.2.5 Conditions for EffectiveManagement 51
3.3 First-Use Doctrine 52
3.3.1 EconomicPrinciples 52
3.3.2 Examples 54
3.3.2.1 USCases 54
3.3.2.2 European Examples 56
3.3.3 EconomicAnalysis 58
3.4 Summaryand Conclusion 61
4 EnvironmentalStandardSetting 63
4.1 Legal versus Economic Meaning ofStandards 64
4.2 Types of Environmental Standards 64
4.2.1 Quality and TargetStandards 65
4.2.2 Emission Standards 66
4.2.3 Technologyor Production Standards 67
4.2.4 Optimal Standard-Setting and Cost–BenefitAnalysis 68
4.2.5 Optimal Specificity 69
4.3 Cost–BenefitAnalysis and Guidelines ofStandardSetting 70
4.3.1 What Are These Guidelines? 70
4.3.1.1 BPM in the United Kingdom 71
4.3.1.2 ALARA in the Netherlands 72
4.3.1.3 BATNEEC inthe IPPC Directive 74
4.4 Standard-Setting Guidelines andEconomic Analysis 74
4.5 Summaryand Conclusion 77
5 Principlesof Environmental Law and EnvironmentalEconomics 79
5.1 Introduction 79
5.2 Sustainable Development 81
5.2.1 Sources 81
Contents vii
5.2.2 Legal and EconomicInterpretation 82
5.2.3 Valuing Future Generations 83
5.3 Prevention atSource 84
5.3.1 Sources 84
5.3.2 Legal andEconomic Interpretation 84
5.4 Proximity Principle 85
5.4.1 Free Trade versus Environmental Protection 86
5.4.2 Exceptions to Article 34:Trade-Restricting Measures 86
5.4.3 Trade ofWastebetween EfficiencyandEthics 88
5.5 PrecautionaryPrinciple 89
5.5.1 Sources and Contents 89
5.5.2 Economic Interpretation 91
5.5.3 The Use ofthe Precautionary Principle 92
5.6 PolluterPaysPrinciple 93
5.6.1 Sources 93
5.6.2 Economic Interpretation 94
5.7 Environmental Law andHuman Rights 96
5.7.1 Environmental Rights in Constitutions 96
5.7.2 ECHR Case Law 97
5.7.3 EconomicInterpretation 98
5.8 Integration 99
5.8.1 Integrationof Laws: Codification 99
5.8.2 External Integration 100
5.8.3 IPPC 101
5.8.4 EconomicInterpretation 101
5.9 Summaryand Conclusion 103
6 Pricing Environmental Harm 106
6.1 Introduction 106
6.2 Importance ofCost–BenefitAnalysis for Environmental
Policy:General 107
6.2.1 Importance for Environmental Policy 107
6.2.2 LimitsofCost–BenefitAnalysis 109
6.3 Cost–Benefit Analysis inEnvironmental Law andPolicy 112
6.3.1 Cost–Benefit Analysis at the European Level 113
6.3.2 Economic Analysis ofSoil Clean-Up 114
6.4 EconomicMethodsto Evaluate Environmental Damage 116
6.5 Summaryand Conclusion 117
7 Market-Based Instruments 119
7.1 Introduction 119
7.2 Role ofEnvironmental Information inthe Markets 120
viii Contents
7.3 Regulation by CommandandControl 121
7.4 Environmental Permit Trading 124
7.4.1 Basic Principles 124
7.4.2 DesignIssues 125
7.4.3 The EU Emissions Trading Scheme 126
7.4.4 Efficacy of Emission Trading Systems 127
7.4.4.1 The ‘Living Legend’ ofthe US SO2Trading
Programme 127
7.4.4.2 Effectiveness ofthe EU Emissions Trading Scheme 128
7.5 Payments for Ecosystem Services(PES) 130
7.6 Environmental Taxation 132
7.6.1 Basic Principles andAdvantages 132
7.6.2 Critical Issues 133
7.6.3 Some SuccessStories 134
7.6.4 The Influence of Private Interest 135
7.7 Elasticities and Distributional Effects on Environmental Welfare 138
7.8 Summaryand Conclusion 142
8 LiabilityRules 145
8.1 EconomicPrinciples of Accident Law: Introduction 145
8.1.1 The Goalof Tort Law 145
8.1.2 The Unilateral Case 148
8.1.2.1 Negligence 149
8.1.2.2 Strict Liability 150
8.1.2.3 Differences 150
8.1.3 The BilateralCase 151
8.1.4 The Activity Level 152
8.2 Negligence versus Strict Liability toControl
Environmental Harm 154
8.2.1 Economic Criteria 154
8.2.2 AFewRefinements 156
8.2.2.1 Information Differences 156
8.2.2.2 Insolvency: Strict Liability versus Negligence 157
8.2.2.3 Positive Externalities 157
8.2.3 Strict Liability in Environmental Law 158
8.2.3.1 InternationalLevel 158
8.2.3.2 Strict Environmental Liability inStatutes 159
8.2.3.3 Strict Environmental Liability in Case Law 161
8.3 Causation 161
8.3.1 Importance of Causation 162
8.3.2 Causal Uncertainty and‘Probability of Causation’ 162
8.3.3 Threshold Liability versus Causal Apportionment 163