Document Type


Publication Title

Pace Environmental Law Review

Publication Date

Spring 2023



Page Number



externalities manifesto, environmental law, benefit-cost analysis


Environmental Law | Law


Don Elliott and Dan Esty were among the chief architects of Environmental Law 2.0-the shift that infused so-called command-and- control regulatory regimes with market-based tools in search of cost- effective solutions. The mix of incentives, trading, banking, reporting, bubbles, and other techniques revolutionized the way we think about how to attack environmental problems like pollution and habitat loss.

In their End Environmental Externalities Manifesto ("Manifesto") they are at it again. This time, however, their proposed revolution goes in a different direction. They argue that the guiding light of economic efficiency, which took environmental law far in improving environmental conditions, is not up to the task of finishing the job. In their view, the efficiency quest took a wrong turn in the 1980s, when benefit-cost analysis using the Kaldor-Hicks net social benefit standard became a dominant decision-making tool for pollution regulation. The result was that we became comfortable with what could be called efficient pollution-we allow emissions if the cost of reducing them exceeds the value of the social benefits reducing them would produce. But those "residual emissions" aren't harmless. They are negative environmental externalities that injure people and degrade ecosystems.

The central thesis of Manifesto is that finishing the job of environmental law means ending these environmental externalities, and that an efficiency-based approach based on net social benefits won't get us there. Rather, to end all externalities will requiring incorporating an environmental rights model aimed at providing compensation to those harmed by residual emissions. Manifesto argues that this would fulfill the "polluter pays" principle, an idea touted as a bedrock of American environmental law, but which is often suspended under net social benefits analysis.

My hunch is that there will be objections to Manifesto's critique of benefit-cost analysis as it has played out in environmental law. For one thing, taking environmental law broadly, strict adherence to benefit-cost analysis does not play a large role outside of pollution control regulation. Nor does Manifesto abandon benefit-cost analysis by any means. Elliott and Esty acknowledge its value for measuring economic efficiency and in guiding some regulatory decisions. But maximizing economic efficiency, they argue, is not the right way to frame environmental law for ending all externalities, if that is our social goal.



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