Government Environmental Regulations and Income Distribution: Where You Stand Depends on Where You Sit - Statistical Data Included

Choices: The Magazine of Food, Farm and Resource Issues, Fall, 2001 by K.R. Tefertiller

HAVE GOVERNMENT POLICIES DESIGNED TO COMBAT SO-CALLED "ENVIRONMENTAL RACISM" ACTUALLY HARMED THE POOR BY ELIMINATING HIGHER-PAYING JOBS CLOSER TO HOME?

A disturbing disparity between upper-income and lower-income groups has evolved in the United States during the past several years. The U.S. is becoming a nation of "haves" and "have-nots." While the number of people in poverty in the United States remains high, the Internal Revenue Service's income statistics reveal that 206,000 individuals reported adjusted gross incomes of $1 million or more for 1999, more than three times the number in 1995. A recent study by the Center on Budget and Policy Priorities (CBPP) found the rich-poor income gap is national in scope, and widened in 44 states during the past decade.

The CBPP recommended that state and federal lawmakers address income inequity through a wide range of programs (such as training programs, tax reform, and direct income transfer). Although government programs may achieve a reduction in the income gap over time, in a competitive economy like that of the United States, a gap of some magnitude will likely remain.

A considerable part of this income disparity must be attributed to differences in skills and educational opportunities. However, might governmental policies also contribute to the widening gap? Sometimes these policies are hidden, or at least not readily transparent to the average citizen. This article includes a conceptual analysis of the tendency of government regulations (in this case, environmental regulations) to intensify income distribution inequities.

Environmental or Economic Racism?

While disparate impact of economic regulation on the poor is accepted as canon in some circles, the issue of adverse impact of environmental regulations on the poor has only emerged in the past few years. A recent example of this phenomenon is the small town of Convent, Louisiana (Payne, 1997). Recently, the Environmental Protection Agency (EPA) stopped plastics manufacturer Shintech from building a plant in the predominantly African-American southern Louisiana town.

According to the Louisiana Department of Environmental Quality, charged by the EPA to regulate state industry, Shintech's plans satisfy the state's strict emissions standards. Despite the state's approval, EPA sided with Greenpeace and its allies, who were determined to stop the plan by invoking President Clinton's 1994 executive order on environmental injustice. The order states, "It is essential that minority and low-income communities not be disproportionately subjected to environmental hazards." It could be interpreted as follows: "All people must consume the same level of environmental quality under all conditions, including income differences among groups of people."

This is a classic case of higher-income members of a community, with the assistance of out-of-town environmental groups, attempting to set higher environmental quality standards than those demanded by low-income members and those set by the relevant state regulatory body. Some low-income stakeholders, far from considering Shintech's plans an injustice, saw it as an opportunity to increase the number of relatively high-paying jobs in the community. A poll of the local NAACP chapter found that 73 percent of the people living near the proposed plant site favored approval of the plant being located there. Nevertheless, EPA cited the location for environmental racism, ignoring the opinions of all the local African-American officials who had voted in favor of the plant. Also, one could argue that the state of Louisiana had already practiced economic affirmative action by declaring the area a state enterprise zone.

EPA did not invoke the executive order to stop the plant, as favored by Greenpeace, but instead called for further research. If further research includes analysis of the different levels of environmental quality demanded by people of different income levels, EPA may find that the economic issue becomes an important consideration

Those Who Have Shall Get, Those Who Don't Shall Pay

The income distribution side of environmental quality externalities is a real issue in a world in which inequality and poverty are high-priority social problems. A better understanding of the impact of environmental quality policies on those with different levels of income is needed to design adequate policies and to obtain the necessary support for their adoption. Based on empirical evidence as well as common sense, it is possible to argue that the demand for environmental services increases as income rises. This leads us to expect higher-income citizens to have a greater demand than poor citizens for such items as clean air. The problem is a classic case of consumers considering two goods, with one being the consumption of environmental quality and the second being the consumption of all other goods.

A consumer preference (indifference) map can be used to show how the demand for environmental quality varies with income. A single indifference curve in such a map shows the various combinations of goods and services that provide the consumer with the same level of satisfaction. In other words, the consumer is indifferent to, or equally satisfied by, any combination of goods and services shown by points on a given curve. An application of the indifference curve approach measures the rate at which consumers will substitute one good (environmental quality) for other goods as previously described.