14 Nov 2011: Opinion

Making the Case for the
Value of Environmental Rules

Some U.S. politicians have been attacking environmental regulations, arguing that they hurt the economy and that the costs outweigh the benefits. But four decades of data refute that claim and show we need not choose between a clean environment and economic growth.

by gernot wagner

In recent months, some in Congress have been waging a whole-scale war against the Environmental Protection Agency. By now it has reached comical dimensions, with three separate bills aimed at preventing a so-called EPA “dust rule” that has never even existed.

The spectacle would indeed be funny, if it wasn’t deadly serious. Republicans in Congress and in the GOP presidential debates are seeking to defund an already cash-strapped EPA under the pretense of caring about the federal deficit and are trying to hamper the agency by arguing that its rules hurt the economy.

Quite to the contrary. We have 40 years of data to show that a cleaner environment goes hand in hand with solid economic growth.

Harvard Professor Dale W. Jorgenson, one of the deans of macroeconomic modeling who has been honing his model of the U.S. economy for decades, calculates that gross domestic product in 2010 was 1.5 percent higher
Overall, the benefits of the 1970 Clean Air Act exceed costs by a factor of 30 to 1.
because of the Clean Air Act of 1970. It turns out that protecting children from foul air leads to more productive adult workers.

That’s the moral equivalent of arguing for child labor laws by saying that keeping kids in school will increase their earnings as adults. But even this reductionist argument, focused only on a narrow definition of dollars and cents, works to show the benefits of cleaner air.

Overall, benefits of the 1970 Clean Air Act exceed costs by a factor of 30 to 1. The 1990 Clean Air Act Amendments match that ratio: $1 of investments led to $30 in benefits — fewer children sick or dying, more productive workers, and healthier environs.

In a 2010 analysis of rules passed in the prior decade, the non-partisan Office of Management and Budget calculated benefits-to-cost ratios across various government agencies. The EPA came out on top with the highest ratios by far, with benefits from its regulations exceeding costs by an average of more than 10 to 1. If you care about well-functioning, free markets, the EPA would be the last federal agency you’d want to cut.

None of this is magic. It’s something much more mundane: honest accounting.

As any economist worth his or her professional crest will tell you, regulation solves problems that markets ignore. For example, they ensure that the costs of those who pollute show up on their own books, rather than increase the costs for others — either those left with cleanup costs or the
If you care about free markets, the EPA would be the last agency you’d want to cut.
healthcare expenses of those who live downwind or downstream.

Those who create costs pay for them — that simple idea is the logic behind the Clean Air Act and most other environmental regulations. It forces markets to reckon with the true costs of doing business, to be more efficient, and to innovate. And it does so at a great benefit to society, even boosting GDP in the long run by making us all healthier and more productive.

But is now the right time to strengthen environmental rules? No major piece of U.S. environmental legislation has been passed when the unemployment rate was above 7.5 percent. (U.S. unemployment currently stands at 9.0 percent.) Environmental protection, after all, costs money that we don’t currently have, or so the story goes. Wrong again: smart environmental regulation creates long-term policy certainty and mobilizes capital in the short term.

Sadly, economic models aren’t helping here. Professor Jorgenson’s model, for example, shows large, long-term benefits of cleaner air. But it also shows short-term costs. The benefit-cost ratio may be high, but there are still costs after all. Someone needs to pay for building retrofits or investments in newer, cleaner technologies.

That, however, is largely a function of the model, which, like most others, assumes a Panglossian economy of full employment, humming along at full speed. Any alteration to that perfect world will, by definition, entail costs.

That’s clearly not the world we live in. Our current economy, with record unemployment, cries out for investment to fuel growth. Sure, government can pay to dig and fill those proverbial holes in the ground. We clearly need massive investments in updating crumbling public infrastructure like roads, railroad lines, and bridges. But we ought to be looking for smarter
Smartly enforced regulation mobilizes private capital to meet the regulatory – and societal – goals.
investments that go beyond paying for jobs that will cease once the government money stops flowing. The whole-scale transition of our energy sector into a cleaner, leaner one is the prime example.

What’s needed more than anything is policy certainty. Smartly enforced regulation provides it and allows us to mobilize private capital to meet the regulatory — and societal — goals. Will that regulation cost money? Yes, but the flipside of cost is investment: Much-needed spending is needed now, and it is the only way to create jobs.

Leave it to the CEO of one of the largest U.S. utilities to set the record straight. Michael Morris, the CEO of American Electric Power, said during an investors’ conference call last month that EPA’s proposed tighter mercury and toxics standards would be anything but a job killer: “Once you put capital money to work, jobs are created.” Someone needs to install the scrubbers and modernize the existing energy fleet.

As Josh Bivens from the Economic Policy Institute put it in a recent congressional hearing on the same EPA toxics rules: “In short, calls to delay implementation of the rule based on vague appeals to wider economic weakness have the case entirely backward — there is no better time than now, from a job-creation perspective, to move forward with these rules.”

Indeed, the numbers just for the EPA toxics rule speak for themselves: up to 17,000 lives saved, and anywhere from 28,000 to more than 150,000 jobs created. That should satisfy even the worst cynics who believe jobs created should trump lives saved.

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Yes, EPA regulation does bring down the unemployment rate — and that’s just when you consider traditional clean air regulation. It doesn’t take into account global warming, which poses an even larger investment opportunity and multiple benefits in lives and jobs alike.

When detractors speak of the enormous costs associated with sensible global warming policy, we can safely discount these figures. But we should always remember that one person’s “cost” is another’s “investment.” A dollar spent is a dollar pumped into an economy that sorely needs more spending to create jobs.

“Green growth” isn’t just a catch phrase. It’s the only way to reconcile our relentless pursuit for material wealth on a finite planet with an atmosphere at the boiling point. The fact is that sound environmental regulations — whether they address dirty air or an overheating planet — can create jobs and be a boost, rather than a burden, for the economy.

POSTED ON 14 Nov 2011 IN Climate Energy Policy & Politics Pollution & Health Antarctica and the Arctic North America 

COMMENTS


I have to agree that providing environmental green jobs in the long-run will be so powerful. It's important to have these opportunities if we want to protect our planet for years to come. The end result will be a cleaner and healthier environment for all!

Posted by Recycle Girl on 14 Nov 2011


Tough to disagree. Why oh why aren't the politicians listening?

Posted by K. Inast on 14 Nov 2011


If government regulation is so good and efficient, why are we being forced to switch from low cost incandescent light bulbs to mercury filled fluorescent bulbs which create new health hazards?

Posted by Needster on 16 Nov 2011


Above is a nice example of why sensible regulations aren't passed more easily despite their economic, health, and environmental benefits - misinformation.

Regulation has not forced you to buy fluorescent bulbs; it has set a minimum efficiency standard. You are free to buy incandescent, halogen, LED, or any other type of bulb as long as it meets a required efficiency.

Moreover, the health hazard of CFLs is not entirely accurate. While a broken CFL will release a small amount of mercury, you are not in any danger from it as long as it is cleaned up in a reasonable fashion (open a window, keep the kids away from it, seal it in a zip lock.) Because CFLs are 4x more efficient than incandescents they actually end up releasing less mercury overall due to reduced power plant emissions which, unlike household CFLs, are actually proven to cause serious adverse health defects.

Plus, they save you $30 per bulb over it's lifetime.

Posted by Nick on 16 Nov 2011


Dear Needster: we are not being forced to switch to fluorescent bulbs. We are going to stop using bulbs that waste more than 90% of the electricity flowing through them, so we can get more of what we want from them, which is light. Incandescent bulbs are mislabeled - they should be called "electric heaters that glow." More efficient bulbs will include improved incandescent and halogen, fluorescent, LED, and other emerging technologies. The tiny amount of mercury in fluorescent bulbs is of concern, and must be handled carefully - but offsets much larger emissions of mercury and other pollutants from power plants. More service with less energy, fewer pollutants and technological innovation - sounds like good economics.

Posted by David Foley on 16 Nov 2011


One reason jobs are not being generated is that U.S. corporations are sitting on $2 trillion in cash due to a lack of business needs to invest. This is an ideal time to create regulatory compliance needs to invest, since the investment in pollution control is justified by the health cost savings, to say nothing of the reduction in suffering from illnesses that are related to pollution.

Posted by David B. Goldstein on 17 Nov 2011


The article has some merit... right up to the point where it pre-supposes that global warming is man made. Then it falls off the rails and becomes another eco-industry talking piece.

Again, there is real pollution and imaginary pollution. They are not the same.

Mercury, smog, heavy metals etc. are real pollution. Co2 is not a pollutant and ascribing some cost to it on the same basis as real pollutants is intellectually dishonest, politically motivated and self delusional.

If one wishes to ascribe a "cost" to CO2, then to be intellectually honest, one must also ascribe value to the benefits, such as lives saved or extended through the use of fertilizers in food production, medicines, clothing, refrigeration, food distribution, electrical generation, home heating.

I find it somewhat inane to wring hands over a problem of undefinable scope that may or may not occur in hundreds of years when the effects of changes that the eco-movement wishes to implement will kill people now through starvation.

Posted by Shoshin on 17 Nov 2011


The author is wrong regarding both good economics and good regulation. He apparently does not understand the notion of effective regulation in the face of external costs. He states:

"Those who create costs pay for them — that simple idea is the logic behind the Clean Air Act and most other environmental regulations."

Basic economics is clear: sound environmental policy should be directed to ensure that those who can mitigate problems for the lowest cost should do the mitigating. This may or may not be the entity responsible for the cost in the first place.

The author seems more concerned with vindictiveness than with an efficient outcome. Sound regulation should be based on reasoning rather than emotion or moralizing.

Posted by jb on 20 Nov 2011


Shoshin, I take it you are a "skeptic," right? Not a "denier," which would be too strong. Given that skepticism is healthy, you may even feel good about saying what you are saying.

Let me break it down for you: If you have a legitimate claim of why CO2 doesn't cause global warming, or why the latter isn't a problem, etc, etc, please go ahead and write it up -- with your name attached to it, not in an anonymous online form.

Once you have done so, send it to Stockholm and pick up your Nobel.

Believe me, there a troves of young scientists itching to make their name by disproving long-settled theories. The fact that none of them have been able to come up with any argument that withstands further scrutiny isn't a conspiracy. It's a sign that there may be something to the original thesis.

Posted by D Roberts on 20 Nov 2011


D Roberts: Your an "alarmist" right?

Shoshin makes valid points that you did not address. Indeed, what about the benefits of CO2? Instead of engaging in a thoughtful reply you simply assert that global warming is a "long settled theory." This sort of dismissive response is common among the warming crowd, and only sows further doubt among the public regarding your position.

Indeed, conversations like these and thousands of other serious people put the lie to your claim that this is a "settled theory." That is an unwarranted and risable assertion.

Posted by jb on 21 Nov 2011


Above is a nice example of why sensible regulations aren't passed more easily despite their economic, health, and environmental benefits - misinformation.

Regulation has not forced you to buy fluorescent bulbs; it has set a minimum efficiency standard. You are free to buy incandescent, halogen, LED, or any other type of bulb as long as it meets a required efficiency.

Moreover, the health hazard of CFLs is not entirely accurate. While a broken CFL will release a small amount of mercury, you are not in any danger from it as long as it is cleaned up in a reasonable fashion (open a window, keep the kids away from it, seal it in a zip lock.) Because CFLs are 4x more efficient than incandescents they actually end up releasing less mercury overall due to reduced power plant emissions which, unlike household CFLs, are actually proven to cause serious adverse health defects.

Plus, they save you $30 per bulb over it's lifetime.

nice

Posted by elas7ab on 24 Nov 2011


While the Earth has always endured natural climate change variability, we are now facing the
possibility of irreversible climate change in the near future. The increase of greenhouse gases in the Earth's atmosphere from industrial processes has enhanced the natural greenhouse effect. This in turn has accentuated the greenhouse 'trap' effect, causing greenhouse gases to form a blanket around the Earth, inhibiting the sun's heat from leaving the outer atmosphere. This increase of greenhouse gases is causing an additional warming of the Earth?s surface and atmosphere. A direct consequence of this is sea-level rise expansion, which is primarily due to the thermal expansion of oceans (water expands when heated), inducing the melting of ice sheets as global surface temperature increases. Forecasts for climate change by the 2,000 scientists on the United Nations Intergovernmental Panel on Climate Change (IPCC) project a rise in the global average surface temperature by 1.4 to 5.8°C from 1990 to 2100. This will result in a global mean sea level rise by an average of 5 mm per year over the next 100 years. Consequently, human-induced climate change will have 'deleterious effects' on ecosystems, socio-economic systems and human welfare.

At the moment, especially high risks associated with the rise of the oceans are having a particular impact on the two archipelagic states of Western Polynesia: Tuvalu and Kiribati. According to UN forecasts, they may be completely inundated by the rising waters of the Pacific by 2050.

According to the vast majority of scientific investigations, warming waters and the melting of polar and high-elevation ice worldwide will steadily raise sea levels. This will likely drive people off islands first by spoiling the fresh groundwater, which will kill most land plants and leave no potable water for humans and their livestock. Low-lying island states like Kiribati, Tuvalu, the Marshall Islands and the Maldives are the most prominent nations threatened in this way.

“The biggest challenge is to preserve their nationality without a territory,” said Bogumil Terminski from Geneva. Rosemary Rayfuse from the University of New South Wales argued that “a solution to the ‘disappearing state’ dilemma is suggested through adoption of a positive rule freezing baselines and through recognition of the category of ‘deterritorialised state’. It is concluded that the articulation of new rules of international law may be needed to provide stability, certainty and a future to disappearing states”.

Posted by Jeff A. on 30 Nov 2011


I like the piece. Well written, factual, considered, and not overly bogged down with statistics (you can always follow the qualitative points with your own research if you feel the need).

It's amazing how climate change skeptics/deniers can accept without challenge so many conveniences brought to them through the application of "theories" such as chemical bonding and interaction, geology, gravity, combustion, atomic structure, etc. These are all theories in that they are only models that are utilized because they are supported by a large amount of rigorously, scientifically collected data that predict outcomes in applicable scenarios.

They may not be 100% correct, they could even be completely disproven and shown to be 100% incorrect (however that becomes more unlikely with more and more supporting data). However, most likely the theories will be only a tiny bit incorrect. And then the scientists will modify the theory to make it better and take into account the error that the data shows them. This continues and continues and the theories become better and better models.

It is a large collection of these models, or theories, that our modern world is built upon. So before you start armchair quarterbacking the scientists who've spent a large portion of their lives studying these theories, and indeed often indirectly hoping they can disprove these theories for the accolades they will recieve and pride in their work they'll feel, you skeptics/deniars should go and earn a Ph.D. in climatology.

Just because you don't want something to be so doesn't mean it isn't.

Let's all pull together and get past the underlying political partisanship of climate change.

Posted by Tynan Wyatt on 07 Feb 2012


The name of the game is: improved implementation of the environmental polluters pay principle. Just do it in a sustained, responsible and disciplined way.

Our day-to-day monitoring and inspections have important role to play, too. All Environmental Civil Society and Non-Governmental Organizations, and Individuals must do more on Education and Action Plan.

Posted by NIJAZ DELEUT on 17 Apr 2012


Comments have been closed on this feature.
gernot wagnerABOUT THE AUTHOR
Gernot Wagner is an economist at the Environmental Defense Fund, where he works on market-based solutions to a wide range of environmental problems. He is author of the book But Will the Planet Notice? How Smart Economics Can Save the World. He also teaches energy economics at Columbia University’s School of International and Public Affairs.

 
 

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