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On December 5, 1984, a pesticide manufacturing plant leaked highly toxic methyl isocyanate (MIC) and the resulting cloud of gas killed over 2,000 people and injured more than 200,000 others living in the shantytowns of Bhopal, India. While no toxic accident in the United States has approached the magnitude of Bhopal, a 1988 United States Environmental Protection Agency (EPA) study found that 11,048 accidental releases of extremely hazardous substances occurred between 1982 and 1986. These accidents caused 309 deaths, 11,341 injuries and the evacuation of 464,677 people from homes and jobs. The EPA estimated that seventeen of these accidents could have caused more damage than Bhopal if climate and other factors had been different. Fred Millar, director of the Environmental Policy Institute's Toxic Chemical Safety and Health Project, has argued that millions of Americans are at risk from chemicals such as hydrofluoric acid, which is widely used by oil refineries to boost the octane levels of unleaded gas.

To prevent catastrophic accidents, government must create incentives to encourage industry to substitute less harmful chemicals or store smaller quantities of toxic materials. This Article examines two methods for industry to internalize the social costs associated with reducing the risks of toxic accidents. First, the Article proposes a new type of incentive system called a toxic death risk index tax that would tax a user of extremely hazardous chemicals based upon how many people might be injured in case of a foreseeable accidental release. This Article will argue that such a tax is necessary because the tort liability system does not force firms to internalize the full costs of their activities because of the possibility that a firm may file for bankruptcy and not pay the full costs of an accident. In addition, this Article examines the neglected issue of mitigating the consequences of accidents and argues in favor of requiring buffer zones around facilities using extremely hazardous substances to reduce the number of potential injuries in adjacent residential areas. The buffer zone is another method of internalizing social costs. The tax and buffer proposals are interrelated because one method of reducing tax liability is for a firm to buy more buffer land.