In the United States, vesting control over environmental regulation at the federal level is most commonly justified both in the legal academic literature and the legislative arena by reference to three distinct arguments. First, advocates of federal control argue that in its absence interstate competition would result in a “race to the bottom.” Second, they maintain that federal regulation is necessary to prevent interstate externalities. Third, proponents of centralization raise the public choice claim that environmental interests will be systematically underrepresented at the state level relative to business interests.

This essay, which builds upon my prior works in the area, has three major purposes. First, it casts serious doubt on the validity of some of the arguments made in favor of centralizing environmental regulation. Second, it shows that, to a large extent, there has been a misallocation of responsibility over environmental regulation: the federal government has taken too aggressive a role with respect to matters best handled at the state level, but has been too constrained in its exercise of authority with respect to issues over which it enjoys a distinct comparative advantage. Third, it attempts to extract from the experience in the United States, lessons that might be of interest to the European Union and to the international trading regime.

The first section develops the arguments for a presumption for decentralization, which calls for vesting responsibility over environmental protection at the state rather than federal level, as a result of differences in preferences over environmental protection, as well as differences in the benefits and costs of such protection.