The Law and Economics of Environmental Federalism: Europe and the United States Compared

This article describes the evolution and key features of the centralized environmental regulatory systems that emerged in the United States and Europe during the latter half of the twentieth century. It applies insights from the positive economic analysis of regulatory centralization in an attempt to explain a striking paradox found in both the European and American centralized environmental regulatory regimes: that in both systems, centralized environmental regulation has been adopted not as a solution for transboundary pollution (inter-jurisdictional externalities), but rather for pollution that is primarily local. The paper explains that the tendency of centralized environmental regulation to focus so paradoxically on localized pollution is due to inherent pressures for regional protectionism and redistribution within a (federalized) political system. Normatively, we provide an up-to-date survey of the theoretical and empirical work on race-to-thebottom theory, and then apply normative economics to develop insight into the relative normative desirability of environmental regulatory centralization in the U.S. versus Europe. We believe that the relatively less centralized European system may have economic justification. On the other hand, the enlargement and increased economic integration of Europe raise both normative questions regarding the desirability of centralized European environmental regulation, and positive questions regarding the future of European environmental law.