The Intersection of Law, Economics, and the Environment in Florida v. Georgia: A Discussion with Prof. Robert Stavins

On April 1, 2021, the Supreme Court of the United States ruled in favor of the State of Georgia, Analysis Group’s client, in a recent chapter in the long-running dispute over rights to the waters of the Apalachicola-Chattahoochee-Flint (ACF) River Basin.

The question before the Court in the case, Florida v. Georgia (No. 142), was whether Florida was harmed by Georgia’s water use and, if it was, whether it was entitled to an “equitable apportionment” of the waters of the ACF Basin. In other words, was Florida entitled to more water than it had been receiving, thus requiring new restrictions on upstream water use in Georgia? The case was the first equitable apportionment dispute to occur in the era of modern environmental law.

Georgia, through its attorneys at Kirkland & Ellis, engaged Analysis Group and affiliate Robert Stavins, the A.J. Meyer Professor of Energy & Economic Development at the Harvard Kennedy School, to provide expert testimony on the economics underlying the dispute. The Analysis Group team included Principal Todd Schatzki and Vice President Jonathan Borck. Professor Stavins recently spoke with them about the case and its implications for the intersections of law, economics, and the environment.   

Dr. Schatzki: Why is economics important in cases like Florida v. Georgia that involve environmental or ecological impacts?

Prof. Stavins: Economics of the environment and natural resources comes up in many types of litigation, such as natural resource damages, commercial damages, and shareholder disputes. The Florida v. Georgia matter raised a number of unique and interesting legal questions, but the underlying economic questions are similar to those in other matters.

The “equitable apportionment” question before the Court, which is unique to this kind of case, is critically informed by economics. For example, one of the questions the Court identified as important was whether the benefits of a reappointment of the water would “substantially outweigh the harm that might result.”

To help the Supreme Court understand these issues, I evaluated a wide scope of economic consequences. An important consequence was the impacts that various proposals made by the State of Florida to restrict water use in Georgia would have on the region’s economies. As these proposals would reallocate water from Georgia to Florida, I also assessed how they would be expected to change the economic value of environmental amenities in Florida. It’s not sufficient simply to claim that Florida’s ecosystem would be better off; it’s important to be able to quantify how much better off.

Dr. Schatzki: How were your opinions used in the Florida v. Georgia litigation?

Prof. Stavins: The Supreme Court appointed a Special Master to conduct a trial, hear evidence, and issue a report for the Supreme Court to consider. The Special Master relied heavily on my testimony to support his opinion that Florida had “not shown the benefits of [Florida’s proposed] apportionment would substantially outweigh the potential harms.”

In reaching this conclusion, the Special Master relied on evidence I provided on a wide range of questions, including the role of water in the Florida and Georgia portions on the ACF Basin, specifics of current water use in the agricultural sector, and the benefits and costs of measures Florida proposed to reduce water use. For example, the Special Master cited my analysis showing that Georgia uses a small share of the Basin’s water, even in dry years, while it comprises the vast majority of the Basin’s population and economic activity. In its final ruling, the Supreme Court agreed with the Special Master’s recommendation to deny Florida relief.

Dr. Schatzki: As an economist, how can you assess the actual or expected impacts of changes in environmental conditions?

Prof. Stavins: The great advantage of economics is that it provides a rigorous framework for evaluating environmental impacts and translating those impacts into economic, or monetary, terms. In the Florida v. Georgia case, economics had an important role to play by providing an unbiased assessment of the merit of Florida’s proposals. In a sense, economic analysis provided a scorecard.

My analyses informed the Special Master (and ultimately the Supreme Court) about the benefits, costs, and distributional implications of each proposal. If one of Florida’s proposals were adopted, who would gain, and who would lose? Would society be better off, or worse off, overall? Most importantly, would reapportionment cost Georgia more than the benefit Florida would receive?

The Special Master also relied on evidence I provided regarding the ability of such measures to deliver incremental quantities of water to Florida, which the Special Master concluded were “impracticable” and “infeasible” and largely “ignored” actions already taken by Georgia, and also that Florida had relied on “misinformation” or suffered from “lack of meaningful evidence.”  

Dr. Borck: Are the economic tools that you used in the Florida v. Georgia matter applicable to other types of litigation?

Prof. Stavins: In some cases, yes – for example, when you need to measure impacts directly through changes in prices or quantities observed in markets. This was appropriate for when I evaluated changes in commercial fishery stocks in Florida v. Georgia. I found that Florida’s proposed measures would lead to economic benefits to its oyster fisheries of less than $1 million per year – a finding the Special Master cited when concluding that Florida had not shown that such benefits would outweigh the harms to Georgia. 

In other cases, the at-issue conduct may affect goods, such as recreational activities, that are not traded in traditional markets. Evaluating these non-market goods requires other methods of economic analysis, which I have in fact employed in a variety of other contexts and cases.

Finally, changes in environmental conditions may affect other values, such as the value people may derive from knowing about the existence of certain species or environmental amenities.  These so-called “non-use” or “existence” values can be controversial, but often come up in the context of changes in environmental conditions.

 

Dr. Borck: Are there potential pitfalls to avoid when using economics to value the environment?

Prof. Stavins: Yes, there are, and they mattered in this case. Any estimated impact – positive or negative – should reflect the change in the value that would arise from the solution, not the total value of a resource. Consider a pristine ecosystem. While it might be perceived to be especially valuable, say, from a social or ecological perspective, this in and of itself has no bearing on whether a proposed upstream restriction on water use should be imposed, or whether a particular event, such as the release of a contaminant, leads to a reduction in value. Only when such a restriction can be shown to actually increase the value of that ecosystem is it worth pursuing.

Another potential pitfall is evaluating and drawing conclusions based on costs without comparing those costs with benefits. Comparing benefits and costs is standard operating procedure in the policy realm – for example, in siting decisions for electricity generation facilities or pipelines. In some litigation, the relevant economic questions extend beyond determining the liability and harm associated with a particular conduct to considerations of the benefits associated with that conduct.

Florida’s expert economist claimed that a variety of proposed actions by Georgia would cost between $35 million and $70 million per year. While these estimates vastly understated the likely costs, Florida’s experts provided no quantitative balancing of potential benefits and costs. One cannot simply infer that it would be “reasonable” to bear these costs because of a claim that they are “small” without a quantitative comparison with the related benefits. That’s where good economic analysis can help.

In contexts in which expert economists estimate environmental benefits, other flaws can emerge. For example, expert economists often rely on unsound methods to estimate environmental values. One method, benefits transfer, involves the use of an estimate of environmental benefits from one context to estimate environmental benefits in a similar but different context. While commonly used, the two contexts need to be sufficiently similar for the approach to yield reliable estimates, a bar that is often not met.

Dr. Borck: In the Florida v. Georgia matter, did you find the impacts of restrictions on Georgia’s water use would be large?

Prof. Stavins: Yes. Water is an important input to many dimensions of Georgia’s economy. I found that Florida’s proposals would impose costs of $205 million to $433 million on Georgia businesses and residents in a dry year, when Florida’s proposed restrictions would have been imposed.

At the same time, scientists who evaluated the matter found that such reductions in water use in Georgia would actually have de minimis impacts on downstream environmental conditions in Florida. Thus, there was little to no environmental gain from any extra water granted to Florida, while the costs to Georgia of such a remedy were substantial, to say the least.

The Special Master’s finding mirrored and cited this evidence, as he found that Florida had failed to show that the benefits of reapportionment would outweigh the economic costs of such measures. ■