When we think about an environmental regulation, we often think about a set of rules that applies in the same way to all regulated entities. For example, polluters within a given industry may all be required to implement the same pollution control technology, or they may not be allowed to emit pollution at a rate higher than an established limit, or they may all be required to participate in the same market-based scheme such as a carbon pricing or a cap-and-trade system. In reality, many environmental protection laws include provisions giving the regulator discretion to grant relief from these regulations. That is, many environmental policies have formal procedures though which one or more polluters may be rendered exempt from complying with a regulation.
Below are several examples of major environmental regulations that have provisions to grant exemptions (also known as waivers, variances, or exceptions, depending on the context):
- Under EPA’s Renewable Fuel Standard (RFS) program, a small refinery may be granted a temporary exemption from the requirement to blend renewable fuels into their gasoline or diesel fuel products, or from the requirement to acquire credits that represent the required renewable fuel volume (known as Renewable Volume Obligations). These exemptions will be granted if the refinery can demonstrate that compliance with the volume obligations would cause it to suffer “disproportionate economic hardship.” EPA has granted a number of these exemptions in recent years, fueling a dispute between “Big Oil” and “Big Corn.”
- The Clean Water Act (CWA) guides the creation of sector-specific national standards that set maximum wastewater discharge limits. However, state authorities issuing discharge permits are required to, and frequently do, impose limits tighter than the discharge standards for the purpose of achieving the levels of surface water quality that support the types of use (e.g., fishable/swimmable) designated by the relevant state agencies. At the same time, the CWA allows regulated wastewater dischargers to petition for a temporary variance from these tighter water quality–based limits when compliance with these tighter limits is expected to cause “substantial and widespread economic and social impacts” in the affected communities. Read about some recent cases in Montana and Wisconsin.
- A cabinet-level committee—the so-called God Squad—can grant exemptions to the Endangered Species Act. The Committee rarely uses these exceptions; it last met more than a quarter century ago during a controversy over spotted owl habitat in Oregon. However, some interest groups have recently called for the Committee to convene in order to waive the protection of salmon in Idaho's Columbia and Snake River area.
- The REAL-ID Act of 2005 allows the Secretary of Homeland Security “to waive all legal requirements” to allow for “expeditious construction of barriers and roads” meant to protect the borders of the United States. Unlike other waiver or exemption provisions built into environmental laws, this law allows for a wide array of laws, including many environmental protection laws (including the Clean Water Act and the Endangered Species Act), to be overridden. Since 2005, Homeland Security has granted 18 such waivers, granting 13 of them since the start of 2017.
One might think that these kinds of exemptions are always bad for society, as they let polluters “off the hook” from complying with regulations that exist to protect human health and the environment. In a new RFF working paper, we demonstrate that the ramifications of these exemptions are complicated.
Exemptions can certainly be used in harmful ways; their discretionary nature leaves them open to abuse. A regulator who is captured by industry, focused only on her own jurisdiction, or answerable only to a set of elites can abuse exemptions in ways that favor certain parts of society but harm society as a whole. This harm could happen if exemptions are used either to allow inefficiently high levels of pollution or to induce a cost-ineffective pollution control pattern.
However, in some cases, exemptions in environmental policy can actually benefit society. In the working paper, we show that exemptions are most likely to be beneficial when the underlying regulation is very inflexible, for example, by imposing the same emissions limit on a group of very different polluters. In these cases, it is possible that some polluters are incurring a cost to reduce their emissions that is larger than the value of the environmental benefits that are associated with those emissions reductions, and society as a whole would be made better off by relaxing the limit for these high-cost polluters by issuing exemptions. Thus, exemptions can give regulators flexibility in the face of an otherwise inflexible regulation and help them achieve a more cost-effective outcome.
We also show that this flexibility can be beneficial if the effectiveness of pollution control technology improves over time. In these cases, regulators can issue temporary exemptions until the pollution control technology becomes more cost effective. In addition, given certain assumptions about the labor market, exemptions can benefit workers and can be used by the regulator to meet redistributive ends. One might see the appeal to this use of exemptions, for example, if a polluter is likely to cease operations because it is forced to comply with an environmental regulation, but this polluter is also the only major employer in a small, isolated town.
Many of the provisions in existing laws that allow for the waiver of environmental regulations do not include a requirement for any analysis showing that the exemption would be socially beneficial or achieve any particular redistributive goal. As examples, Clean Water Act variances are not subject to cost-benefit analyses, and REAL-ID waivers are essentially granted based on Homeland Security’s assertion of a need to build a border barrier. As a result, these settings provide no empirical basis for arguing that these exemptions benefit society. Equally important, these exemptions can run contrary to society’s interests if they are granted to benefit narrow interests of politically influential stakeholders.
Since exemptions are reasonably common in environmental policy, more theoretical and empirical work is needed to examine the practice and the impact of granting exemptions. In the meantime, this working paper provides some general principles that can help regulators and the general public start categorizing cases in which exemptions are likely to be used “for good or for ill.”