What Can Regulators Regulate? the Case of the Urban Heat Island Phenomenon?

I Introduction THE RECENT PROLIFERATION of environmental studies that predict a rise in global warming and an increase in the unpredictability of future weather patterns has caused great concern in some scientific communities. Because much of the unstable weather patterns are thought to arise through man's use of scarce resources (i.e pollution externalities released through the process of industrial production), quick and easy solutions are being sought by scholars in many fields, including economics (Cline, 1991; Nordhaus, 1991; Schelling, 1992). The problem of goal-setting appears to be a central issue, especially when considering the element of international cooperation. Asymmetric incentives exist to reduce the release of pollutants and toxins into the atmosphere. Developing nations are rapidly developing production technologies that entail the use of coal, oil, wood and other fuels that produce waste. Realizing the power (both natural and economic) of such natural resources, most developing nations have been reluctant (historically) to consider other, cleaner methods of production.(1) The release of the toxic by-products of many natural resources is suspected to be a contributing factor to the destruction of the ozone layer in the earth's atmosphere and a rise in general temperature levels (the so-called "global warming" trend). Many environmental scientists are beginning to challenge the so-called global warming phenomenon. Prominent among these is Robert Balling (1986, 1987, 1988, and 1992) who has provided substantial evidence of the often unscientific methods of collecting temperature data on a worldwide basis. Balling (1992) and other scientists (Lee, 1984; Kukla, Gavin, and Karl, 1986; Quayle, 1988) have pointed out that weather stations are not evenly distributed throughout the globe, and many temperature measures come from major airports in metropolitan areas. By examining comparative historical data, Balling (1992) suggests that this reality emphasizes the distinction between global warming and urban warming. Are there any non-greenhouse possibilities being described by the data? Balling and others believe so, and these include the possibility of the influence of volcanic eruptions on the global temperature record, the appearance of warm and cold water over the extensive ocean surfaces, as well as variations in the output of the sun. The purpose of this study is to analyze, in an economic context, an important point made by Balling and others, namely the distinction between global warming and urban warming. Environmental problems, like other types of common-pool problems (e.g., fisheries, public hunting/grazing lands), have often invited economic regulation of some form. Indeed, since 1980 many environmental, regulatory, and antitrust functions have been transferred to unequipped state attorneys general. States have been left to comply with federal environmental statutes such as the Clean Air Act, administered by the EPA.(2) This paper deals with the nature of the problem of urban warming and its relation to the release of greenhouse gases. By building upon the theories of "regulatory capture" (Stigler and Friedland, 1962; Stigler, 1971; Peltzman, 1976) and "rent seeking" (Tollison, 1982; Tullock, 1989), the present study provides statistical tests of the efficacy of the EPA in combating urban warming. Using a two-stage least squares technique and data from 40 Standard Metropolitan Statistical Areas (SMSAs, which for this study represent urban areas in excess of 100,000 population) on EPA-violations of ambient air quality standards for ozone protection, this study tests the viability of the EPA in meeting its objectives to fight urban warming through enforced reductions in the emissions of greenhouse gases that possibly deteriorate atmospheric ozone. The final section of the study offers concluding comments. II The Urban Heat Island Phenomenon SINCE 1989, many studies on environmental problems have appeared in the economics literature. …