The case for regulatory uncertainty

If companies fear unintentionally doing the wrong thing, is that so bad?

The Trump administration made it easier for companies to kill endangered birds earlier this month. And they did it in the name of "regulatory certainty."

The administration cited the same justification back in 2018 when it scrapped an expansion of hazardous waste rules, and more recently when it rolled back a major Obama administration protection for waterways. In fact, as Trump's team has implemented a sweeping agenda of cutting regulations, providing "regulatory certainty" has become something of a mantra. "Regulators exist to give certainty to those that they regulate," said Scott Pruitt, Trump's first appointee to head the Environmental Protection Agency (EPA).

But do they? You'd think regulators exist to ensure certain hard-to-monetize values — such as worker safety, a clean environment, and animal habitats — aren't bulldozed by the demands of the profit motive. Why is clarity suddenly the central concern of America's regulatory state?

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Long before Trump, conservatives were making the case that businesses need certainty in order to invest. If companies don't know the rules they're supposed to follow, they may not take risks with new business models or expand operations, and we all suffer the cost when living standards don't rise as fast. "Those that we regulate ought to know what we expect of them, so that they can plan and allocate resources to comply," Pruitt said at the time. That seems reasonable enough, and there's a justifiable version of this argument we'll get back to. But very often, and especially under the Trump administration, invocations of "regulatory certainty" just provide cover for unpopular decisions.

In fact, rather than clarifying an unstable policy environment, Trump's cuts more often than not actually create fresh uncertainty for businesses. That was the case when the administration blew up Obama's clean-power plan, which was set to cut down on carbon emissions from U.S. power generators. It's also what happened when Trump's White House dismantled a large portion of the rules his predecessor put in place to protect American streams and watersheds from pollution. The administration's efforts to scale back car emissions standards — and its fight with California's state government over the same rules — has left automakers unsure of what requirements they'll face, when, and in what part of the country. In all of these instances, the rules were in place and were clear. (They were also popular.) Instead it was Trump who sowed regulatory chaos. From 2016 to 2017, power utilities citing uncertainty as a major problem jumped from 12 percent to 35 percent, for example.

But set aside Team Trump's hypocrisy. Sometimes there's just inherent uncertainty in whether a company falls afoul of a rule.

Take the Trump White House's latest decision about bird protections.

The Migratory Bird Treaty Act makes it illegal to kill protected bird species "by any means or in any manner," and since the 1970s regulators have prosecuted companies that unintentionally kill birds with wind oil spills, power lines, and so forth. It's credited with saving multiple species that have been close to extinction at some point, including the Snowy Egret, the Sandhill Crane, and the Wood Duck. (And saving endangered species seems like something that would qualify as one of those hard-to-monetize values regulation is supposed to protect.)

But the Trump administration recently decided that only intentionally killing birds should count as violations of the treaty.

This isn't just raw hypocrisy and bad faith; there really is an inherent amount of uncertainty built into punishing businesses for results of their actions they didn't intend. It's probably impossible to codify in regulatory language when negligence resulting in avian deaths should rise to a violation of the treaty. And that means regulators and courts will inherently have to exercise discretion. In the case of the Migratory Bird Treaty Act, they'll have to decide when violations of the Act rise to the level of something they want to expend resources going after: How many birds? Which species? What sort of activity? Anticipating how regulators will use their discretion is obviously impossible, and is certainly annoying for businesses. (One of the complaints from supporters of Trump's move is that the Obama administration used the act to disproportionately go after oil and gas companies.) But no energy company is going to set out to kill endangered birds, so the Trump administration's interpretation effectively dismantles the rule outside of hunting and trapping Snowy Egrets for their feathers.

But why shouldn't American companies fear unintentionally killing endangered birds? That fear will motivate them to take the most precautions possible, like oil companies doing everything they can to avoid spills and bursts pipes, or logging companies being careful about not cutting down nests.

At bottom, American capitalism is about taking new risks and adapting to new challenges. And in its way, this is just life under uncertainty: If the universe challenges you, can you meet it head on and innovate a way out? In that sense, there's no difference between, say, consumers suddenly wanting meatless meat, the rise of a new disruptive startup that cuts into your companies' market share, and American regulations imposing new obligations to avoid driving the Sandhill Crane to extinction. Each is an unexpected challenge businesses must rise to meet. "Uncertainty," then, is a slippery notion. In fact, we’ve tried to assess the effects of "uncertainty" on the economy in the past, and those efforts keep running aground on the conceptual impossibility of measuring the thing itself.

Ultimately, what opponents of "regulatory uncertainty" are really objecting to is that Americans' democratic process has prioritized certain values over others, and is compelling businesses to abide by those decisions. If they'd prefer different values be prioritized, that's fine. But then the issue isn't uncertainty; it's whether, for example, slightly cheaper power is worth killing off a few irreplaceable animal species.

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