The environmental and economic impacts of environmental regulations: The case of underground storage tank regulations

In this dissertation, I investigate one specific environmental regulation---Underground Storage Tank (UST) regulation. Chapter 2 first explored common law remedies for UST releases, and suggested that the common law systems were not adequate for compensating pollution harm, providing financial protection to UST owners, and preventing future risk. US legislature created a regulatory regime to deal with UST problems. The regulations require UST owners and operators to demonstrate that they have the financial resources to pay for the cleanup costs and third-party compensations (FRRs). Most states set up state fund programs to help UST owners and operators achieve compliance with FRRs. In other states, UST owners need to purchase private insurance. This chapter argues that compared to state fund programs, the private insurance market has an advantage in compensating pollution harm, providing financial protection to UST owners, and preventing future risk. Chapter 3 provides empirical evidence for a proposition in Chapter 2---compared to state fund programs, the private insurance market has the advantage of encouraging risk reduction efforts on the part of UST owners and operators. The key difference between the private insurance market and the state fund programs is that the private insurance market fully utilizes risk-based pricing mechanisms while such mechanisms are largely absent from state fund programs. Michigan, Illinois and Indiana all implemented UST state fund programs, but Michigan switched to the private insurance market in 1995. The analyses show that the policy transition helped Michigan significantly reduce the UST facility release rate. This study suggests that risk-based pricing mechanisms are effective tools of encouraging risk reduction efforts. Chapter 4 investigates whether and how UST regulations had uneven impacts on various types of firms in petroleum retail markets. This study suggests that small businesses have more difficulties to compete with large businesses under UST regulations. Economies of scale gives large outlets a greater competitive advantage because it is more difficult for small outlets to pass on the compliance costs to customers. Liquidity constraint makes single-outlet firms more vulnerable to UST regulations because they are not able to finance the work needed for compliance with the regulations