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Environmental Justice or Gentrification?

by Shawn Regan

This week, EPA director Lisa Jackson announced new plans for her agency to incorporate environmental justice into its decision making processes. Outlined in a guidance document released this week, the EPA will begin considering the disproportionate impact pollution has on low-income and minority communities when drafting new rules.

Several factors have led to a federal fight against environmental injustices.  First, a 1983 government study found that hazardous waste landfills in the Southeast were almost entirely located in low-income, minority communities. In 1994, President Clinton signed an executive order promoting nondiscrimination in environmental policies. The EPA’s latest announcement is an extension of this broader effort at improving environmental inequalities.

But as H. Spencer Banzhaf writes in a recent PERC Policy Series, this type of well-intentioned effort may be misguided. Banzhaf’s analysis suggests that the result of this top-down attempt to improve environmental quality in lower-income neighborhoods amounts to “environmental gentrification” and can harm the very people it seeks to help:

Residents who moved into dirtier communities tend to place a higher priority on low-cost housing than on the environment. Cleaning up the environment may increase those costs by more than their willingness to pay, as wealthier households bid up property values. As poor residents are more likely to rent their housing, they stand to lose from these increased housing costs.

The net effect can be perverse. Clean-up efforts can supplant lower-income residents with wealthier ones who have a higher willingness to pay for environmental amenities.

Other households that had been avoiding the pollution may move back in, driving up housing prices…The original residents have to move out or pay the new premiums. Although they enjoy the environmental improvement, the higher rental payments more than offset that gain, making them worse off. The biggest gainers are the absentee landlords and some of the new gentrifying residents.

Even the National Environmental Justice Advisory Council recognizes this phenomenon, writing in a report that “environmental cleanup of these formerly industrialized, now residential, communities can be a powerfully displacing force.”

Banzhaf’s solution? Reduce transactions costs between communities and polluters. If transactions costs are low enough and property rights are defined, “markets in pollution” will emerge.

Specifying the right to pollute—or to be free from pollution—allows pollution to be traded. [Ronald] Coase suggested, for example, that negotiations could arise over factory smoke. If factories have a right to pollute, local residents may pay them to not pollute. If local residents have a right to be free from pollution, factories might compensate them to accept some pollution.

There is evidence that this market-based process is functioning. About half of all solid-waste landfills in the U.S. provide compensation to nearby communities, giving out an average of $1.5 million in 1996 and as much as $20 million in one instance.

If the current EPA scheme reduces transactions costs for lower-income communities, it will help facilitate Coase-like solutions that compensate nearby landowners. But if it simply attempts to eliminate environment injustices, Banzhaf’s research indicates it will likely have perverse results.

Click here to read H. Spencer Banzhaf’s PERC Policy Series “Environmental Justice: Opportunities Through Markets.”

Shawn Regan is a public affairs fellow at PERC.

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