Why More Government Regulation Seldom Works

The Gulf oil spill tragedy has focused the nation's attention on a regulatory system that has failed in preventing an environmental disaster. The typical response from politicians and government officials to regulatory failures is to demand more regulations — a solution likely to fail. New and more complex regulations will not prevent future environmental disasters because they are practically impossible to enforce.

The environmental regulatory system in this country is already "front end loaded" with numerous and extensive permit requirements. It is not uncommon for environmental permits to be hundreds of pages long and contain numerous complex requirements that are seldom enforced. Federal and state environmental agencies could not afford to hire an army of regulators to enforce all of the existing permit requirements and even if they could the government agents would seldom have the expertise to effectively detect and prevent environmental compliance problems.

An environmental regulatory system can only work with the powerful incentives that make compliance in the best interest of the company. The Oil Pollution Act of 1990 set a liability cap for oil companies of $75 million for public and government claims that are not directly related to clean up costs. This sends the wrong signal to the company.

As BP has belatedly learned, the strongest incentive for environmental compliance is the very survival of the company. No amount of additional regulations can provide that kind of incentive.

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