For EPA regulations, benefits consistently exceed costs

This World Resources Institute re-post is by Ruth Greenspan Bell.

Research shows that the benefits of environmental regulations consistently exceed costs, in part because they end up costing far less than both industry and the EPA predict.
When EPA promulgates regulations, industry often expresses concern that the regulations will cause extreme economic hardship. Now this argument is being made regarding EPA regulation of carbon pollution using existing legal authorities like the Clean Air Act.

In fact, there is extensive literature showing that the costs of environmental regulations are more than offset by a broad range of economic, public health and jobs-related benefits. Additionally, initial cost estimates are consistently found to be exaggerated. Economists and researchers who have compared actual costs with initial projections report that regulations generally end up costing far less than the dire predictions from industry and even, as an RFF study shows, below cost projections by the Environmental Protection Agency.

The latest effort to challenge EPA regulations is being led by the U.S. Chamber of Commerce who express “strong concerns about [their] significant negative impact”¦on jobs and local economies.” Industry claims extend well beyond regulation of greenhouse gases: two recent industry-backed studies (here and here) attempt to show that tougher EPA emissions rules for boilers and a more stringent nationwide ozone standard could put millions of U.S. workers out of their jobs and shrink the nation’s economy by upward of $1 trillion.

How do the benefits of environmental regulations stack up to the costs?

Though costs have always been highlighted by industry – and many policymakers – the fact is that public benefits associated with environmental regulations consistently outweigh the costs. For example, the White House Office of Management and Budget (OMB) recently released its thirteenth annual Report to Congress, detailing the estimated benefits and costs of federal regulations, finding that:

“The estimated annual benefits of major Federal regulations reviewed by OMB from October 1, 1999, to September 30, 2009, for which agencies estimated and monetized both benefits and costs, are in the aggregate between $128 billion and $616 billion, while the estimated annual costs are in the aggregate between $43 billion and $55 billion.1

For clean air and water regulations promulgated by the U.S. Environmental Protection Agency over the same time period, the estimated aggregate annual costs range from $26 to $29 billion, while benefits range from $82 to $533 billion.

Does environmental regulation force U.S. firms to relocate elsewhere?

Few firms flee the United States to “pollution havens” in poor countries, despite industry’s frequent claims to the contrary. Economics for Equity and the Environment Network points out that:

“Environmental costs are generally below 2 percent of total business costs. Firms that do leave the U.S. generally do so in pursuit of lower labor and health-coverage costs, expenditures that form a much higher percentage of their total costs. Economists searching for evidence supporting widespread flight of polluting industries have not found significant effects.”

Is environmental regulation a job killer?

Independent researchers who have examined this question say no.

First, looking only at job losses inevitably ignores a larger truth: environmental spending creates jobs that offset losses. Compared to overall spending in the economy, on a per dollar basis, spending on environmental protection and clean-up employs more than twice as many workers in construction (11 percent versus 4 percent) and 25 percent more in manufacturing (20 percent versus 16 percent). Plant closings and layoffs in response to environmental regulation are very rare, affecting only 1/10th of 1 percent of all layoffs nationwide. Over that same 1990-1997 period, 10 million U.S. workers were laid off for non-environmental reasons.2

A case in point: opposing the 1990 Clean Air Act amendments, a study sponsored by the U.S. Business Roundtable expressed “little doubt that a minimum of 200,000 (plus) jobs will be quickly lost, with plants closing in dozens of states. This number could easily exceed one million jobs – and even two millions jobs – at the more extreme assumptions about residual risk.” In fact, in the eight year period following the 1990 Clean Air Act amendments, less than 7,000 total jobs were lost across the entire United States as a direct consequence of the Clean Air Act, and, as noted above, many more jobs were created.

Resources for the Future studied four heavily regulated industries (steel, petroleum, plastics, and pulp and paper) to conclude that the data does not support claims that environmental spending significantly reduces employment in heavily polluting industries.

Most studies examine macro level (i.e., economy-wide) impacts. But what about local impacts?

Berman and Bui tested whether regulation of air pollution in manufacturing plants in the South Coast Los Angeles region reduced employment. In this highly polluted manufacturing area of Los Angeles, they concluded that the most stringent episode of increased industrial air quality regulation did not have a large effect on manufacturing employment. And, they found evidence that increased air quality regulation increased oil refinery productivity. Among their conclusions:

  • The data clearly ruled out conclusions that these regulations caused large job losses. Admittedly, the regulations did impose costs on regulated plants, but they had little effect on employment. Some contemporary critics misleadingly discuss job losses that resulted from declining military spending, but this was unrelated to environmental regulations.
  • No plants were shut down by environmental regulations, nor were new startups dissuaded by environmental regulations, as measured in the Census of Manufactures.
  • The oil industry in the South Coast did not shed any more or less jobs relative to similar facilities in Texas and Louisiana that were not subject to the same level of regulation. Regulated plants actually increased their energy productivity through technological changes, including cogeneration of electricity using waste gases.

Berman and Bui concluded: “This study carefully documents an important case in which [industry cost] projections grossly exaggerated the costs of regulation.”

Are the government’s own estimates of job losses reliable?

For decades, OMB has required EPA to estimate the costs and benefits of proposed regulation (Executive Order 12291). Experts compared EPA’s pre-regulatory cost estimates of the economic burden with what actually happened (including reduced productivity and lost jobs) when the regulations went into effect. Their conclusion? Even EPA’s (and other agencies’) own pre-regulatory estimates of economic burden are overly pessimistic of the total costs. Often, this is because they underestimate the potential that technological change, including innovation and commercialization, minimizes pollution abatement costs.

Why do even EPA’s numbers overestimate the costs of regulation?

There are many reasons why EPA overestimates costs. Here are a few:

  • Economists do not own crystal balls to project technological innovation. In the acid rain (SO2) program (the model for climate change cap-and-trade proposals), scrubbing turned out to be more efficient and more reliable than expected. Pre-regulation, analysts assumed that scrubbers operate at 85 percent reliability and remove 80 to 85 percent of the sulfur. In fact, scrubbers typically run in excess of 95 percent reliability, removing 95 percent. The original estimate of opportunities to blend low and high sulfur coal in older boilers was a 5/95 mixture. In fact, industry was able to achieve a much more efficient 40/60 mixture.
  • Industry often finds creative ways to meet standards at lower compliance costs, that aren’t anticipated in EPA’s pre-regulation estimates. For example, about two million tons of SO2 reductions came from railroad deregulation that allowed industry access to low-sulfur, western coal. After OSHA set air lead standards, industry complied by putting workers into protective gear to reduce their lead exposure, rather than changing the ambient air conditions; the levels of air lead in plants remained high for years.
  • Government estimates sometimes calculate the maximum cost to industry rather than the mean – in other words, the worst rather than the average impact. Why? One reason is that the agency’s inventory of installed pollution control equipment may be out-of-date. It may not include the most recent pollution control investments, thereby overestimating the quantity of emissions reductions required to meet a particular goal.
  • Industry is frequently the source of EPA’s cost estimates because industry has direct access to the most relevant cost information. Though most regulated industries have an interest in over-estimating costs, Agency officials must either refute or accept their estimates at face value; skepticism or mere suspicion of industry numbers is not a legally defensible reason to disregard them during the rulemaking process. Asked “what will it cost?” a firm’s analyst may provide an “off-the shelf” compliance technology, when in fact a more considered approach would reveal that substantial cost savings can be achieved through innovation, for example. Sometimes, EPA has no choice but to ask outside contractors who hire industry experts to develop cost estimates, leaving the agency cost estimates subject to the same biases as those of industry.

The Office of Technology Assessment reached similar conclusions in a 1995 study (one of the last they issued before being eliminated) of occupational health and safety regulation. OTA found that pre-regulatory cost estimates systemically under-predicted innovative responses and over-predicted impacts.

In conclusion, independent experts have demonstrated why initial claims about costs and job losses related to EPA action under the Clean Air Act should not be taken at face value.

— Ruth Greenspan Bell is a former EPA attorney, with 17 years of experience implementing several environmental laws managed by EPA.

11 Responses to For EPA regulations, benefits consistently exceed costs

  1. dbmetzger says:

    you don’t have regulations now this is what you pay for later…

    Engineers Build “Sarcophagus” to Cover Chernobyl Plant
    A new billion-dollar confinement shelter to cover the notorious fourth reactor of the Chernobyl nuclear plant in Ukraine has begun construction. The so-called “sarcophagus” is set to be ready by 2013.

  2. Colorado Bob says:

    What many of us were thinking this fall –

    Delayed ice formation along the west coast of Canada’s Hudson Bay has put hundreds of polar bears at risk of starvation, wildlife experts say.

    The Canadian Ice service, a division of Environment Canada, says warmer-than-usual temperatures have put ice formation four weeks behind schedule, Canadian Broadcasting Corp. News reported Thursday

  3. George Ennis says:

    I was wondering if those denying climate change have any ice they can spare.

    As reported yesterday on the CBC Canada’s national broadcaster there are hundreds of polar bears waiting for the ice to freeze over on Hudson’s Bay. It seems the freezing is about a month behind schedule which means the bears cannot go out hunting on the ice for seals. (Yes polar bears can swim but not that far and for that long!). In the interim the bears are basically starving or running down their fat stores. It may come as a shock to those denying climate change but temperatures in the Arctic are way above normal.

  4. _Flin_ says:

    Well, take a look at Germany with highest growth since 20 years. Their economy doesn’t seem to care about higher power prices and lots of green stuff.

  5. catman306 says:

    Thanks Ruth Greenspan Bell (and Joe for posting this where we can find it). Here is an antidote for talk radio lies and misconceptions. It will be linked whenever necessary.

  6. When the Canadian govt killed its only piece of climate legislation this week, Harper claimed he saved millions of Canadian jobs…

  7. Ken Johnson says:

    So what is the implication? Should regulatory policy be constructed to achieve a predetermined emission target at the lowest possible cost, or should it operate to achieve the lowest possible emissions within some predetermined cost limit?

  8. Ken Johnson #7: For climate the answer is to achieve a predetermined emissions target that we choose based on our values and our knowledge of the climate system (e.g., 2 degrees C or lower) at lowest possible cost. The dynamics of technology change will lead to continued emissions reductions as the market shifts to make the lower emissions technologies higher volume, lower margin, and lower costs, and in the end, fossil fuels will become like whale oil, which was displaced by lighting technologies that were simply better (coal gas, natural gas, and eventually electricity). Nowadays people just don’t care about whale oil, and that’s where we need to get to regarding fossil fuels. Jim Woolsey calls it turning oil into salt, which was once quite valuable in olden times but now is about as cheap a commodity as you can find.

  9. Seth B says:

    This is what the Center for American Progress should be concentrating on: Someone has to remind the American people of the benefits of laws and regulation and the horrible track the nation was on before those laws and regulations were enacted. From child labor to unsafe food to toxic air and water to wholesale destruction of forests and waterways, pre-regulation America was nasty, brutish, and short.

  10. Barry says:

    Really helpful post. Thanks!

  11. Mulga Mumblebrain says:

    Denialism has its roots in protection of fossil fuel wealth, which is measured in the trillions. However there is also a strong element of crude ideological fervour involved. The Right hates and fears environmentalism like no other philosophy.Having seen off socialism, and ended the threat that humanity, equality, fraternity and basic decency might threaten the neo-feudal global system that they have fashioned,our parasite rulers both need a new ‘enemy’ to keep the serfs quiescent, (and environmentalism is up there with Islam and China as the new ‘forces of evil’) and they also see environmentalism as a threat to their global rule. Environmentalism shows us that constantly growing capitalism must eventually consume the planet’s resources, pollute or destroy every eco-system and far exceed the planet’s ‘carrying capacity’, and this is a truth that our rulers must suppress.
    Market fundamentalist capitalism, as well as being inherently antithetical to ‘democracy’ in any meaningful sense of the word, is also innately neoplastic. In nature no system grows infinitely, save the cancer or populations without predators, whose numbers inevitably overshoot and collapse. That process is in full spate right now across the planet, and the Rightwing denialist industry simply denies every crisis. Unfortunately the time to confront these synergistic crises was twenty or thirty years ago,long after ecologists began to raise the alarm. Now it is almost certainly too late. The only question left is why the masters are so reckless, so callous, so contemptuous of their own descendants’ life prospects? That is the mystery of mysteries, and all the possible explanations are deeply unpleasant.