Cross-media pollution and fuels - Can we avoid future MTBEs?

Recent experience with the gasoline additive MTBE shows that regulations intended to improve environmental quality in one medium (e.g., air) may lead to unintended, and more serious, environmental consequences in another (e.g., water). The “cross-media pollution problem” refers to the unintended impacts in one environmental medium of environmental regulations implemented in another. We examine the potential for mechanism design to help regulators avoid unintended consequences of cross-media pollution in situations involving uncertain cross-media damages and asymmetric liability information between regulators and firms. In an empirical example, we consider the case of MTBE gasoline additive regulation in California.