Encouraging Corporate Policy: An Ethical Analysis of Environmental Regulatory Methods


A powerful impetus for corporate environmental policy change is government mandated regulations.  Before addressing the current regulatory regime, the right to pollute must first be discussed.  Then, the pros and cons of two methods – the cost-benefit and polluter pays methods – will be introduced.  Next are policy recommendations that attempt to address the cons of the recommended polluter pays system.  Finally, the role of scientists and engineers in the public discourse regarding environmental regulations, and in general, will be laid out.

Air Pollution in Los Angeles: 1960’s to Today

In 1980s Los Angeles, 27% of young homicide victims had severely damaged lungs.  The cause?  Pollution.  In fact, the 1980s rate of only 27% is a marked improvement over the 1960s rate of about 70%, when Los Angeles had the worst air quality in the world [1, 2].  The great improvement can be attributed to a variety of environmental regulations enacted at both the state and federal level throughout the latter half of the twentieth century.  The most important regulation to be passed was the Clean Air Act of 1970, which enabled the regulation of emissions from both stationary and non-stationary sources, such as factories and automobiles [3]. 

Although the government has played a substantial role in environmental protection, it is ultimately the engineer who should shoulder the burden of ameliorating climate change.  To be clear, it is unfair to blame engineers for climate change.  Yet, as the individuals managing factories and designing the next generation of vehicles, we must attempt to address the environmental concerns posed by climate change.  One avenue is advocacy for prudent environmental regulations that best protect the public.  To that end, we have a moral imperative to contribute to the public discourse as we are most knowledgeable on the subject. 

Before specific regulatory solutions to environmental issues can be evaluated, the right to pollute must first be addressed.  Then, two specific regulatory methods will be discussed: the cost-benefit and polluter pays methods.  The next section will be a specific policy proposal: rather than using the hybrid cost-benefit/polluter pays system currently in place, I recommend a total switch to the polluter pays system as it best enables the protection of all citizens.  The last section will be dedicated to why scientists and engineers have an obligation to contribute to the public discourse.

The Right to Pollute

All entities have a limited right to pollute if that the pollution does not impinge upon the wellbeing of others and the environment.  A few terms must be defined before discussing the right to pollute.  In this context, entity can reference an individual, group of individuals, or corporation, while pollution will refer to something that contaminates the environment.  Corporations are included due to corporate personhood, where corporations are often treated as a human in a court of law [4].  The following two paragraphs will clarify the rationale behind the upper and lower limits set forth in my proposed right to pollute system. 

To support the claim for a limited right to pollute, using the restroom while hiking will be used as an example.  For readers who have not been hiking, there are rarely designated restrooms along trails.  When hikers need to relieve themselves, they step off the trail to do so.  Given the definition of pollution as “contaminating” the environment, the hikers are polluting.  Yet, to penalize them for relieving themselves in an area without public restrooms would be absurd.  Herein lies a perfect example of why banning an entity from polluting is impractical.  In all industries, completely removing contaminants from waste streams, and hence not polluting, is impossible.  Put another way: everyone produces waste.  If the assumption of zero waste is unfair, then right to pollute must be assumed for both individuals and corporations. 

If individuals or corporations have the right to pollute, environmental harm and impinging on individual wellbeing should be what determine when a practice becomes unacceptable.  The hiking example can again be utilized.  Say the trail in question is quite popular.  If many people end up using the restroom at any single spot, that area will quickly become fetid, impinge on other hikers’ wellbeing, and come to be considered polluted. Generally, corporations do the same: each releases a little waste that eventually adds up to a larger problem.  For example, in 2016, the EPA reported that chemical manufacturers released over 150 million pounds of chemicals into the air [5].  Although that much waste is problematic, it is not all harmful.  Take an acetone manufacturer in Massachusetts.  Acetone dumped at low concentrations shouldn’t adversely affect anyone’s health, but when the manufacturer doesn’t remove enough acetone and dumps at a high concentration, habitats could be damaged or humans poisoned.  The issue is then setting the line between acceptable and unacceptable.  To explicitly mitigate individual harm, Massachusetts lawmakers set the limit for acetone in wastewater to 6.3 ppm [6].  On the other hand, nuclear waste dumping requires far stricter limits, specifically because nuclear waste is far more dangerous.  Based on the previous examples, one method to determine when an entity is polluting too much is to assess the harm caused.  With such a guideline, environmental regulations would attempt to mitigate and minimize what would otherwise be unaddressed harms. 

Two Methods of Addressing Environmental Regulations

There are two main methods for addressing environmental regulations: the cost-benefit and polluter pays methods.  The cost-benefit method initially seems straightforward and is generally favored by socially conservative groups.  In the polluter pays method, regulators set pollution limits that companies are required to meet, with non-compliance usually resulting in a stiff fine. 

Cost-Benefit Method

The cost-benefit analysis done for the cost-benefit method is similar to that employed by classical economics: if the cost of a good or service exceeds the derived benefit, then it should not be purchased and vice versa.  For example, if a consumer derives $10 of benefit from a pizza slice that only costs $5, then the consumer should purchase the slice of pizza.  In contrast, if a consumer has already consumed ten slices of pizza and only derives $4 of benefit from the same $5 slice of pizza, then the consumer should not purchase the slice.

Proponents of the cost-benefit method argue that environmental regulations should be treated no differently.  If the cost of a given regulation exceeds its benefits, then that regulation should not be enacted and vice versa.  This method seems inherently simple and is what economists term allocatively efficient, where as much money that needs to be spent is spent.  For example, say regulators wish to decrease the federal limit for atmospheric ozone from 70 to 60 ppb.  If it cost $1billion to achieve that reduction in atmospheric ozone while providing $2B in benefits, then a cost-benefit proponent would argue the reduced limit should be enacted.  Some proponents might even argue that the ozone limit should be further reduced until the costs equal the benefits, as is desired in classical economics.  Judging environmental regulations using the cost-benefit method allows for an objective determination of whether any given environmental legislation should be enacted. 

The apparent ease with which the cost-benefit method can be applied comes with significant drawbacks.  First, it is exceptionally difficult to place values on the benefits derived from environmental regulation, and second, the cost-benefit method inequitably distributes costs and benefits.  For the first point, costs are relatively easy to determine: each piece of remediation equipment, from catalytic converters for cars to strippers for industrial plants, has a finite and distinct price that can easily be tabulated.  Determining benefits is a completely different beast.  How is one to quantify the value of clean air, undisturbed natural habitats, or even a human life?  Putting aside the ethicality of quantifying a human life, even if ones does, the value will fluctuate.  Within just the United States government, a human life has numerous valuations.  In 2016, the value of a human life was determined to be $8.9 million at the Department of Agriculture, $9.5 million at the Food and Drug Administration, and $10 million at the Environmental Protection Agency [7].  The other benefits of environmental regulation are no less arbitrary in their valuation.  Methods exist to determine the benefits of conservation, such as the Travel Cost Model and Contingent Valuation Method, but each comes with unique flaws.  For example, the Travel Cost Model requires easily observable behaviors which usually are not available, while the Contingent Valuation Method depends purely on hypothetical situations that are challenging to empirically confirm [8].  With such a significant difficulty, the cost-benefit method becomes far less practical to implement. 

The second drawback to the cost-benefit method is the lack of fairness in cost and benefit allocation.  Say a company dumped hazardous waste into a lake adjacent to a small town.  Those residents get sick and accrue medical bills worth $500 million while the cost to the polluting company of completely cleaning up the hazardous waste is $1billion.  A true proponent of the cost-benefit method would say the hazardous waste should be left there simply because the cost of waste remediation is higher than the associated medical bills.  Thus, the company would not be held accountable for its waste and could further pollute until the two costs are equal.  However, just because the costs equal the benefits does not mean that their distribution is equitable.  In the above scenario, the company claims all the benefits: not having to pay any remediation costs.  Conversely, the residents bear all the costs: the medical bills engendered by the pollution.  Even if the company is forced to reimburse the medical costs, residents were still harmed.  Yet, all harm could have been avoided had the company just paid the initial remediation costs. By considering harming individuals an acceptable option for cost comparisons, the cost-benefit method places a decreased priority on protecting individuals.  When the cost-benefit method is used in drafting regulations, companies accrue the benefits while costs are often distributed to citizens.  Even if companies are held accountable, the fact that citizen health is even negotiable suggests a fundamental flaw with the method. 

Polluter Pays Method

The polluter pays method prioritizes the safety and health of citizens over what should arguably come second: corporate profits.  This approach is in stark contrast with the cost-benefit method.  Going back to the ozone limit example, the issue is viewed through an almost completely different lens when using the polluter pays method.  Say a variety of new studies are published showing the current maximum of 70 ppm of ozone to have previously unknown health risks.  Regulators would then determine a suitable level of atmospheric ozone, such as 60 ppm, and mandate that companies meet that requirement.  In this way, the sole focus of regulators is ensuring the wellbeing of citizens.  At no point does a regulator have to consider the costs or benefits to a company.  With regards to a company’s right to pollute, this method of analysis also likely gives too wide a latitude to pollute but encounters the error in a significantly different manner: being too conservative with protections. 

As a method that prioritizes the wellbeing of citizens over all else, polluter pays may at first seem like the perfect light in which to view environmental regulations.  Yet, it is not without its flaws.  It has two in particular: the arbitrariness of the limits at which regulators decide to set new regulations and the fact that the system acts as a type of regressive tax.  The first flaw encountered is in many ways the same as that encountered by the cost-benefit method in that the exact value at which a given regulation is set, such as atmospheric ozone limits, is arbitrary.  Where the polluter pays method diverges from the cost-benefit method in this regard is the implication of the imposed regulation.  Specifically, at no point in the polluter pays method does the life of a human need to be quantified.  Instead, the main question being asked is “does this new limit keep citizens safe?”  Put another way, the polluter pays method completely avoids the ethical minefield of quantifying human life and focuses on the protection of the public. 

The second flaw with the polluter pays method is that it acts as a regressive tax.  The regressive nature of the polluter pays method, indeed environmental regulations in general, stems from the fact that its costs are distributed to all citizens equally.  For example, say the state of California wishes to decrease carbon dioxide emissions by ten percent.  No matter how the state convinces companies to reduce emissions, it is inevitable that per unit production costs will increase.  Some percentage of that per unit cost increase will most likely be passed on to the consumer in the form of a slightly more expensive product.  With producers increasing their product prices by a flat amount, lower income citizens are harder hit than others, forming the basis of the regressive “tax.”  The cost-benefit method is also regressive in its structure, just less so when compared to the polluter pays method because the cost-benefit method aims for allocative efficiency whereas polluter pays only concerns the wellbeing of the citizen.  In this way, poorer citizens are more affected by increased costs, specifically because corporate profits are ignored in the regulatory decision-making.

Addressing the Cons of Polluter Pays: Policy Recommendations

If the protection of citizens, and perhaps even the environment, is seen as the moral imperative, then the polluter pays method should be adopted over the cost-benefit method in regulatory decision-making.  In the cost-benefit method, the health of citizens is negotiable and often in contention with corporate profits.  On the other hand, the polluter pays method focuses exclusively on protecting citizens.  Based solely on the engineering principle of protecting the public, the polluter pays method is superior to the cost-benefit method because the health of the public is not negotiable [9].  The polluter pays method also does not require the valuation of a human life, unlike the cost-benefit analysis.  If viewed on just ethical grounds, the polluter pays method should clearly be adopted over the cost-benefit method. 

In adopting the polluter pays method, special considerations must be made for its unique drawbacks.  The arbitrariness in determining limits has been addressed in this paper; namely, polluter pays already improves upon any system that uses the cost-benefit method by overprotecting, as opposed to underprotecting, the public and environment.  Addressing the regressive nature of environmental regulations, particularly with the polluter pays method, will be a much more significant issue, as those who disagree with environmental legislation will most likely disagree with the following policy recommendations. 

There are two distinct types of policy to address the regressive nature of polluter pays: tax and free market.  Tax policy would involve decreasing taxes for the poor or increasing taxes on the rich.  However it is accomplished, the underlying point is to shift the downstream regulatory burden placed on the poor to those more capable of paying.  The free market approach is slightly more complex.  Perhaps the best example of this approach is the use of carbon credits in California’s Cap and Trade Program.  In this system, each carbon credit allows a company to emit a certain quantity of carbon dioxide.  A market is then created for the carbon credits in which companies that significantly cut their carbon emissions can sell their excess credits to companies having trouble cutting emissions [10].  This system attempts to reach allocative efficiency among the various companies, thereby minimizing the regressive nature of environmental regulations on the producer side.  Through the implementation of one or a combination of the above policy proposals, the repercussions of the polluter pays method can be minimized, while the implementation of the regulatory method itself will help to minimize harm to both the public and the environment.

The Scientist’s and Engineer’s Responsibility

We, as the scientists and engineers, are not just obligated to create and improve technology that benefits humanity, but also to meaningfully contribute to the public discourse, including on potential environmental regulatory solutions.  The creation and improvement of technology beneficial to humans, and by extension the environment, is far less contentious than this contribution.  Scientists and engineers should be contributing to the public discourse specifically because they are the experts in their respective fields.  As it currently stands, the public is almost comically uninformed on a wide array of technical subjects, from genetically modified organisms to climate change.  In not publicly and forcefully correcting the gross misconceptions that currently abound, scientists and engineers are practically complicit in the spread of misinformation. 

We, as the scientists and engineers, are not just obligated to create and improve technology that benefits humanity, but also to meaningfully contribute to the public discourse, including on potential environmental regulatory solutions.  The creation and improvement of technology beneficial to humans, and by extension the environment, is far less contentious than this contribution.  Scientists and engineers should be contributing to the public discourse specifically because they are the experts in their respective fields.  As it currently stands, the public is almost comically uninformed on a wide array of technical subjects, from genetically modified organisms to climate change.  In not publicly and forcefully correcting the gross misconceptions that currently abound, scientists and engineers are practically complicit in the spread of misinformation. 

Undoubtedly, scientists and engineers are justified in worrying they will be ignored by the public, or worse, ridiculed, especially in today’s political climate.  Yet, not speaking up would be the true detriment to society, which would be deprived of the voices of its best-informed citizens.

By Brandon Chew, Viterbi School of Engineering, University of Southern California


[1] Anonymous “History of Smog,” LAWeekly, September 22, 2005. Available: http://www.laweekly.com/news/history-of-smog-2140714

[2] H.L. Motley, R.H. Smart and C.I. Leftwich, ‘”Effect of polluted los angeles air (smog) on lung volume measurements,” Journal of the American Medical Association pages = {1469-1477}, vol. 171, no. 11. Available: https://jamanetwork.com/journals/jama/fullarticle/327059

[3] Anonymous “Evolution of the Clean Air Act.” Available: https://www.epa.gov/clean-air-act-overview/evolution-clean-air-act

[4] C. Torres-Spelliscy, “The History of Corporate Personhood,” Apr 7, 2014. Available: https://www.brennancenter.org/blog/hobby-lobby-argument

[5] EPA, “2016 TRI National Analysis,” United States Environmental Protection Agency, Jan. 2018, pp. 16. Available: https://www.epa.gov/sites/production/files/2018-01/documents/comparing_industry_sectors.pdf

[6] Mass.gov, “Current Regulatory Limit: Acetone,” Office of Energy and Environmental Affairs, May 2018. Available: http://www.mass.gov/eea/agencies/massdep/water/drinking/standards/acetone.html

[7] D. Merrill, “No One Values Your Life More Than the Federal Government,” Bloomberg, October 19, 2017. Available: https://www.bloomberg.com/graphics/2017-value-of-life/

[8] U.S. DEPARTMENT OF COMMERCE and National Oceanic and Atmospheric Adminstration, “ECONOMIC VALUATION OF NATURAL RESOURCES,” NOAA COASTAL OCEAN PROGRAM, June 1995, pp. 41-54. Available: https://repository.library.noaa.gov/view/noaa/2922/noaa_2922_DS1.pdf

[9] National Society of Professional Engineers, “NSPE Code of Ethics for Engineers,” National Society of Professional Engineers, 2017. Available: https://www.nspe.org/resources/ethics/code-ethics

[10] Climate Policy Initiative, “California Carbon Dashboard,” California Carbon Dashboard, 2018. Available: http://calcarbondash.org/