Limiting Environmental Regs Raises Fears of ‘Race to the Bottom’

Texas likes to be “business friendly” and as the state legislature considers bills to limit environmental regulation to keep it that way, some economists warn of the longer term consequences.

Dave Fehling / StateImpact Texas

Cattle ranch borders petrochemical plant in Calhoun County

“It’s not as simple as saying yeah, it’s a negative for everybody and everybody is going to move out of the state if we have more stringent regulation,” said Daniel Millimet, an environmental economist at Southern Methodist University in Dallas.

The idea that too much regulation can scare off business has been a main thrust of some of the state’s environmental regulators like David Porter, one of the three elected leaders of the Texas Railroad Commission. Speaking last October at oil and gas drillers conference in San Antonio, Porter contended that should Texas succumb to the stricter pollution regulation of the federal government, disaster would follow for the state’s booming drilling industry.

“It will cripple the industry and it will cripple our economy. We must keep regulation of Texas’s natural resources in Texas by Texans,” Porter told the convention. “It is the Railroad Commission’s long history of wisely enforcing state regulations that has allowed oil and gas to drive our economy and establish Texas as a national economic powerhouse.”

No doubt about the powerhouse part.

“Texas,of course, hands down is just killing it as far job creation, capital investment and attracting companies to its state,” said Lee Higgins with the Site Selection Group, a Dallas company that works with governments and businesses to find locations for industrial plants, warehouses and offices.

Texas Knows How to Do Business

Dave Fehling / StateImpact Texas

David Porter, Texas Railroad Commission, speaking to drillers at DUG conference in San Antonio in October 2012

Higgins says Texas is recognized as the leader in finding ways to attract jobs and not just in the traditional petroleum and chemical sector but also in alternatives using wind to make electricity. The Governor’s office just launched an attack that uses a radio ad to be aired in Illinois to persuade businesses there to move to Texas. The Governor had previously targeted California.

Bills Limit Regulation

Making sure no industry is too encumbered by environmental regulation seems to be the aim of  several bills before the Texas legislature.

What the Research Tells Us

But economists in Texas and other states tell StateImpact that when it comes to creating jobs, there’s no clear evidence that minimizing environmental regulation will help.

“I think it’s very hard to find statistical evidence that that is true, but you do see examples of that argument being made,” said Arik Levinson, an environmental economist at Georgetown University in Washington D.C.

Levinson’s research leads him to conclude that lax enforcement of pollution laws may not make much difference in whether some energy companies stay in—or relocate to—Texas.

“Texas has natural advantages in many of these industries. That’s why they’re located there; there’s oil in the ground, a natural harbor, oil refineries already built there. So moving those industries out of the state is difficult”, Levinson said.

By contrast, Levinson said “cleaner” industries like electronics are more flexible as to where they locate and might actually be deterred from coming to a state that’s perceived as having a pollution problem.

 Race to the Bottom?

What also troubles Levinson is this: if states try to out-do each other to attract new business by relaxing environmental enforcement, it could lead to just what a major federal law passed decades ago was trying to prevent.

“The Clean Air Act in ’70 and ’77 was enacted in part to set national standards so that states wouldn’t compete with each other with this sort of a race to the bottom,” Levinson told StateImpact. Texas has ranked poorly against other states in several measures of air quality, toxic exposure of its residents, and for the total amount of hazardous waste it creates.

Daniel Millimet, the environmental economist at SMU, said he too finds no clear evidence that relaxed pollution regulation increases overall employment and therefore he says there’s a risk in pursuing state policies based on the belief.

“We may undercut our regulation here in Texas even though it doesn’t actually influence decisions firms are actually making,” said Millimet.

In Louisiana where there is also a vibrant gas and oil exploration industry as well as huge petrochemical complexes, Jay Shimshack, an environmental economist at Tulane University, said his research has shown that stringent enforcement does reduce pollution.

“It’s also clear environmental regulation has real costs. But those costs come with significant benefit in terms of enhanced environmental quality,” said Shimshack.

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