In the US, criminal prosecution of environmental violations is on the rise.  Environmental enforcement remains one of the few areas in which government resources continue to grow.  USEPA’s criminal enforcement program has more than 350 specially trained investigators, chemists, engineers, technicians, lawyers, and support staff.  USEPA opened 346 new environmental crime cases in 2010, the second highest number of new cases since 2005.

In 2010, at just the US federal level, criminal charges were brought against 289 defendants, a 45% increase over 2009 and the highest number since 2005.  251 of the 289 cases (87%) included charges against at least one individual defendant, as opposed to a business or corporation.  Of the cases completed during 2010, 88% resulted in either a guilty plea or conviction at trial.  Defendants convicted of environmental crimes in 2010 were assessed a total of $41 million in fines and restitution and were ordered to pay $18 million for environmental projects, an 80% increase over the previous year.

Since 1990, when 75% of all environmental criminal charges were brought against companies, the focus has changed dramatically, with nearly 75% of such charges now being brought against individuals.  Multiple violations can be stacked (aggregated) for purposes of sentencing, meaning that even misdemeanor violations may result in jail terms of over one year.  In 2010, individual criminal defendants were sentenced to a total of 72 years of jail time.

These statistics, the resources being devoted to criminal enforcement, and the often low burden of proof needed to obtain a conviction, demonstrate that the prosecution of environmental criminal liabilities will only increase in future years in the US. 

A recent Seventh Circuit decision authored by Judge Richard Posner provides a useful review of the doctrine of standing in the context of an alleged environmental injury. In American Bottom Conservancy v. U.S. Army Corps of Engineers (No. 09-cv-603-GPM) issued on June 14, the Seventh Circuit concluded that the plaintiff conservation organization had standing to appeal the U.S. Army Corps of Engineers’ issuance of a Section 404 permit. Members of the Conservancy had offered sufficient evidence to support their allegation that destruction of the wetlands near a state park would diminish the wildlife population (including birds and butterflies) visible to them, and thus their enjoyment of the wildlife.

The Army Corps permit authorized Waste Management of Illinois, Inc. (WMI) to remove soil from wetlands which it owned near the park and to use that soil as cover for its neighboring landfill. Once it completed the excavation of those wetlands and adjacent acreage, WMI intended to convert the area into a new landfill. WMI agreed to configure compensating wetlands of even greater size in the immediate vicinity and next to the state park.

After casting a critical eye at several grounds articulated in the past to support the doctrine of standing, Judge Posner identified the “solidest grounds” as being “practical” ones. Those included “preventing the federal courts from being overwhelmed by cases” and ensuring that “the legal remedies of primary victims of wrongful conduct will not be usurped by persons trivially or not at all harmed by the wrong complained of.”

Based on his finding that the wetlands to be destroyed were close enough to the park to impact birds and butterflies that could fly into or over the park or be seen from it, Judge Posner concluded that there was sufficient proximity to demonstrate the probability of harm to the park’s wildlife. He then rejected the district court’s conclusion that members of the conservation organization must show that they would no longer visit the state park. Instead, he declared that it was only necessary to show that their “pleasure is diminished”.

Judge Posner also disagreed with the district court’s finding that the injury was “merely speculative” because about 30% of the wetlands would be preserved and compensating wetlands of twice the size would be built. Judge Posner found it more significant that more than two-thirds of the existing wetlands would be eliminated, that the compensating wetlands would not be built until after all soil removal had occurred, and that the time for the new wetlands to reach maturity would exceed the short lifespan of at least some species (such as the six week lifespan of a butterfly), Judge Posner found the probability of injury, even if small, to be real.

In sum, Judge Posner concluded that the plaintiff had met its burden of alleging a probable harm to its members (the “injury in fact” which consisted of being deprived of the pleasure of watching wildlife) and of seeking relief that would address such injury (retraction of the Army Corps permit). He noted that for standing purposes plaintiff need not show the magnitude of the injury, as distinct from its directness. Consequently, the Seventh Circuit reinstated the Conservancy’s lawsuit. The Seventh Circuit also denied WMI’s request that the district court’s dismissal be upheld on the merits because WMI had not filed a cross appeal seeking to dismiss the case with prejudice.

Judge Posner’s analysis of the case law and commentary on the standing issue reveals his concern about conflating the “zone of interests” for standing and the merits of a case. As he noted in Harzewski v. Guidant Corp., 489 F.3d 799 (7th Cir. 2007), involving an ERISA class action, interpreting standing requirements too broadly would merge the standard of proof for standing with the standard of proof on the merits. His latest effort to address the issue should provide helpful guidance in an area where the prerequisites for establishing standing have been a matter of serious debate.

On Tuesday, April 19, 2011, the Supreme Court heard oral argument in American Electric Power v. Connecticut, a case where the Second Circuit held that States and private plaintiffs may maintain actions under federal common law alleging that five electric utilities have caused or contributed to global warming, and may seek injunctive relief capping defendants’ carbon-dioxide emissions at judicially determined levels. The questions before the court are: 1) whether States and private parties have standing to seek judicially fashioned emissions caps on the five utilities, 2) whether a cause of action to cap carbon-dioxide emissions can be implied under federal common law when the Clean Air Act speaks directly to the same subject matter, and 3) whether claims seeking to cap defendants’ carbon-dioxide emissions at “reasonable” levels based on a court’s weighing of the potential risks of climate change against the socioeconomic utility of defendants’ conduct, would be governed by “judicially discoverable and manageable standards” or could be resolved without “initial policy determination[s] of a kind clearly for nonjudicial discretion.” Baker v. Carr, 369 U.S. 186, 217 (1962).

The transcript of Tuesday’s argument is available online here.

Although one must be cautious about predicting results based on questions raised during oral argument, it is difficult to review the transcript of argument without concluding that the justices were very skeptical about a federal common law action to address climate change.

Several of the Justices questioned whether the relief sought by plaintiffs was properly the role of EPA rather than the courts. Justice Ginsberg observed that “Congress set up the EPA to promulgate standards for emissions, and now what -- the relief you're seeking seems to me to set up a district judge, who does not have the resources, the expertise, as a kind of super EPA.” (Tr. 37)

Justice Roberts expressed a similar concern, namely that with global warming “there are costs and benefits on both sides, and you have to determine how much you want to readjust the world economy to address global warming, and I think that's a pretty big burden to post -- to impose on a district court judge.” (Tr. 40-41) Justice Alito similarly was concerned with how a district judge would deal with the tradeoffs involved in providing relief. (Tr. 59).

Justice Kagan agreed, saying that plaintiff’s complaint “sounds like the paradigmatic thing that administrative agencies do rather than courts.” (Tr. 41-42) Justice Kagan further wondered whether plaintiff’s theory would mean that they “have a Federal common law cause of action against anybody in the world,” (Tr. 51) This prompted Justice Scalia to ask whether one could aggregate “all the cows in the country” and bring a climate change suit against all farmers, or all homes that emit carbon dioxide in their heating systems. (Tr. 52-53). Justice Breyer wondered what would happen if a district judge thought that a $20 per ton tax on carbon was the best way to deal with the problem. (Tr. 61). This prompted Justice Scalia to ask what standard would prevail if a district judge set an emission limit and EPA subsequently set a different standard. (Tr. 65). He added that this is a “displacement of the normal process of administrative law.” (Tr. 66)

Last week, EPA’s Office of Solid Waste and Emergency Response announced release of its Community Engagement Implementation Plan. Who could be against community engagement? It’s as American as apple pie. It’s environmental justice. It’s community input into decisions that affect the community. It’s transparency and open decision-making.

Call me a curmudgeon, but I’m against it. Study after study shows that, in terms of the actual risks posed by Superfund sites, we devote too many of our environmental protection dollars to Superfund sites, when we should be focusing on air and water. Why do we keep doing this? Because the community demands it. As Peter Sandman has noted, perceptions of risk are driven only partly by the actual hazard posed. To a significant degree, those perceptions are more driven by outrage over the situation. In some circumstances, what Sandman calls outrage management makes sense, but I’m skeptical that EPA’s community engagement initiative is really about outrage management.

In any case, here’s the public policy question of the day. Does it really make sense to spend scarce environmental protection resources, not to reduce risk, but to reduce outrage?

I save the instructions for an item so I can try to figure out what is wrong when it breaks. Given the state of our financial markets, I went looking for the instructions. I couldn’t find a copy of Adam Smith’s nine hundred page, two volume set The Wealth of Nations, first published in 1776. I did; however, find the next best thing: P.J. O’Rourke’s On the Wealth of Nations, (Atlantic Monthly Press 2007), a concise 250 page explanation that is both informative and entertaining. In reading through O’Rourke’s summary, I noted that Smiths three principles that determine market behavior (i.e, pursuit of self interest, division of labor and freedom of trade) explain a lot about why the markets currently are frozen up. We have had perhaps too much of all three, and too much of a good thing rarely turns out well.  Being an environmental lawyer, it also struck me that unintended consequences of current environmental regulations might be at least in part responsible for our current financial situation.  Finally, given the change in administrations, it occurred to me that the interplay between the market economy and environmental regulation and policy will continue, so we need to be smart about it.  

Adam Smith identified three critical aspects of proper market function that have been called his “invisible hand.” The first is that people act in their own self interest. This is the basic motivation for capital investment, risk taking and human labor. The second is that we get more productivity and higher quality of life if there is a division of labor such that the people who are good at things do them and those that are not pay the people who are good to do them for them. Third, and the one most important to our discussion, is that the less regulation on trade among the people doing these specialized tasks, the better. Smith was, of course, most concerned about tariffs and their effect on international trade, but certainly any regulation imposes some friction on the markets.

This brings us to the question of how environmental regulation may have caused, at least in part, the current financial crisis. To make this point it is helpful to think of financial markets, which we want to be “fluid,” like a system of tanks and pipes in a waterworks.  Water is analogous to money in this example.  Adam Smith’s first principle, self interest, is a motivating force, like a pump in our system. The second principle, division of labor, is a set of pipes which are sized according to the amount of economic activity they carry (Wal-Mart is a bigger diameter pipe than say your local shoe repair shop). Regulations are analogous to valves that restrict flow in the system. 

Both water in a pipe and money in our financial markets follow the path of least resistance. Putting aside questions about excessive self interest (read greed) and excessive division of labor (read opaqueness or lack of accountability) which may have contributed to the financial meltdown, regulations played a role as well.   Just as valves can direct the flow of water in a system, regulations direct the flow of money in our economy. Traditional, capital intensive, economic multiplying investment opportunities, say in energy infrastructure or manufacturing facilities, have faced stringent regulation which imposed significant resistance to that investment opportunity -- small pipes with lots of valves. On the other hand, many financial investment vehicles offered little or no resistance; they were big pipes with no valves. Guess where the money flowed? 

            So what implications does this have for future environmental policy or regulation. With a change in parties in the adminstration, the old debate between those favoring market based regulation and those favoring command and control is rekindled. As the new administration considers economic stimulus packages and regulations on environmental impacts, it will be well served to understand that it is not only the absolute amount of regulation, but also the relative amount of regulation, on economic options can have a significant impact on the markets as well as unintended consequences. Moreover, while terms like “free market” and “markets forces” may be derogatory in some circles, the reality is that market-based environmental programs have worked so well. No one can seriously debate the success of the acid rain program far more productive than command and control regulations would have been in that situation.  The reason is that market-based programs rely on the same human nature that Adam Smith recognized in his first principle and that gets our entrepreneurial and creative juices flowing.  That is what is needed to solve economic and environmental problems.  Ignoring market concepts in environmental regulation only leads to unintended consequences, conflict and gridlock, which the markets and we can no longer afford.