A Negative Externality by Any Other Name: Using Emissions Caps As Models for Constraining Dead-Weight Costs of Regulation, 66 Admin. L. Rev. 345 (2014)
Emissions caps work on a simple and compelling premise. Regulated entities, in the process of creating something desirable, like energy, create and expel a problematic byproduct, such as carbon. They do this because they exclusively reap a significant set of benefits (e.g., profits, market share, job security) from their efforts in the process of providing the generalized benefits that accrue from adding more energy resources to the market, and providing that energy to their customers. However, they suffer the harms caused by their emissions only diffusely and incidentally, along with the rest of society. These emissions, paid for primarily by the rest of society, are called negative externalities. Emissions-cap regimes are designed to make regulated entities more directly accountable for the costs of their emissions and give them heightened incentives to minimize those emissions. This process is known as internalizing the externalities. Perhaps ironically, regulatory agencies occupy a position markedly similar to that of the regulated emitters. Agencies, in the process of creating something desirable, such as a cleaner environment, also create and impose externalities, such as burdens on business and the economy. They do this because they reap particular benefits (e.g., job security and prospects, additional authority and powers, prestige, and self-worth) from their efforts, while suffering the harms caused by the dead-weight costs of their regulations only diffusely and incidentally, along with the rest of society. Emissions-cap regimes therefore provide a condign--though nevertheless imperfect--model for establishing a system by which regulatory agencies can be obliged meaningfully to take account of, and to minimize, the efficiency and economic losses occasioned by their regulations. This Article will propose and elaborate on a regulatory “Compliance-Cost Cap” system derived from emissions-cap models and the principles that animate such models, designed to oblige regulatory agencies to constrain the deadweight costs of their regulations.
Scott Andrew Shepard, A Negative Externality by Any Other Name: Using Emissions Caps As Models for Constraining Dead-Weight Costs of Regulation, 66 Admin. L. Rev. 345 (2014)